Template-type: ReDIF-Paper 1.0
Author-Name: Simona Cantono
Author-Email: simona.cantono@unito.it
Author-Workplace-Name: Department of Economics, University of Turin
Author-Name: Gerald Silverberg
Author-Email: gerald.silverberg@merit.unimaas.nl
Author-Workplace-Name: UNU-MERIT
Title: A percolation model of eco-innovation diffusion: the relationship
	 between diffusion, learning economies and subsidies
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.
Classification-JEL: C61, H23, O32, O33
Keywords: Innovation diffusion, learning economies, percolation, networks,
	 heterogeneous agents, technology subsidies, environmental technologies
Series: UNU-MERIT Working Papers
Creation-Date: 2008
Number: 025
File-URL: http://www.merit.unu.edu/publications/wppdf/2008/wp2008-025.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2008025