A percolation model of eco-innovation diffusion: the relationship between diffusion, learning economies and subsidies

Cantono, Simona and Silverberg, Gerald (2008). A percolation model of eco-innovation diffusion: the relationship between diffusion, learning economies and subsidies. UNU-MERIT.

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  • Author Cantono, Simona
    Silverberg, Gerald
    Title A percolation model of eco-innovation diffusion: the relationship between diffusion, learning economies and subsidies
    Publication Date 2008
    Publisher UNU-MERIT
    Abstract An obstacle to the widespread adoption of environmentally friendly energy technologies such as stationary and mobile fuel cells is their high upfront costs. While much lower prices seem to be attainable in the future due to learning curve cost reductions that increase rapidly with the scale of diffusion of the technology, there is a chicken and egg problem, even when some consumers may be willing to pay more for green technologies. Drawing on recent percolation models of diffusion by Solomon et al. [7], Frenken et al. [8] and Höhnisch et al. [9], we develop a network model of new technology diffusion that combines contagion among consumers with heterogeneity of agent characteristics. Agents adopt when the price falls below their random reservation price drawn from a lognormal distribution, but only when one of their neighbors has already adopted. Combining with a learning curve for the price as a function of the cumulative number of adopters, this may lead to delayed adoption for a certain range of initial conditions. Using agent-based simulations we explore when a limited subsidy policy can trigger diffusion that would otherwise not happen. The introduction of a subsidy policy seems to be highly effective for a given high initial price level only for learning economies in a certain range. Outside this range, the diffusion of a new technology either never takes off despite the subsidies, or the subsidies are unnecessary. Perhaps not coincidentally, this range seems to correspond to the values observed for many successful innovations.
    Keyword Innovation diffusion
    Learning economies
    Percolation
    Networks
    Heterogeneous agents
    Technology subsidies
    Environmental technologies
    JEL C61
    H23
    O32
    O33
    Copyright Holder UNU-MERIT
    Copyright Year 2008
    ISSN 1871-9872
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    Created: Wed, 11 Dec 2013, 16:22:45 JST