Environmental Innovation, War of Attrition and Investment Grants

Michele Moretto and Cesare Dosi
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Cesare Dosi: University of Padova

No 2004.156, Working Papers from Fondazione Eni Enrico Mattei

Abstract: The paper analyses the timing of spontaneous environmental innovation when second-mover advantages, arising from the expectation of declining investment costs, increase the option value of waiting created by investment irreversibility and uncertainty about private payoffs. We then focus on the design of public subsidies aimed at bridging the gap between the spontaneous time of technological change and the socially desirable one. Under network externalities and incomplete information about firms’ switching costs, auctioning investment grants appears to be a cost-effective way of accelerating pollution abatement, in that it allows targeting grants instead of subsidizing the entire industry indiscriminately.

Keywords: Environmental innovation; Investment irreversibility; Network externalities; Investment grants; Second-price auction (search for similar items in EconPapers)
JEL-codes: O38 Q28 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-ene, nep-env and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Environmental Innovation, War of Attrition and Investment Grants (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2004.156

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