The tragedy of product homogeneity and knowledge non-spillovers: explaining the slow pace of energy technological progress

Wei Jin and ZhongXiang Zhang
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Wei Jin: The University of New South Wales

Annals of Operations Research, 2017, vol. 255, issue 1, No 30, 639-661

Abstract: Abstract There is a growing body of literature mentioning the slow progress of energy technological innovation as compared to information technology (IT), but the reasons why the energy sector is perplexed by slow innovation remain unexplained. Based on a variety-expanding endogenous technological change model, this paper investigates the economic mechanism that underlines the slow pace of energy technological progress. We show that in the market equilibrium the growth rate of energy technology variety is always lower than that of IT variety, this outcome stems from both the market fundamentals where the homogeneity of end-use energy goods is less likely to harness the pecuniary externality embedded in the love-for-variety household, and the technology fundamentals where capital-intensiveness of energy technology assets inhibits the non-pecuniary technological externality associated with knowledge spillovers. We further show that the social planner allocation can raise the rate of technological progress in both energy and IT sectors, but still fails to achieve an outcome in which technological progress in the energy sector can catch up with the IT sector. Finally, using efficiency-improving revenue-neutral policy interventions that subsidize energy sectors and tax IT sectors, the decentralized market equilibrium can achieve an outcome in which both energy and IT sectors have the same rate of technological progress.

Keywords: Energy technological innovation; Product homogeneity; Knowledge spillovers; Love-for-variety effect (search for similar items in EconPapers)
JEL-codes: O31 Q41 Q43 Q48 Q55 Q58 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10479-016-2144-1

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