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Vintage capital and the diffusion of clean technologies
Author(s) -
Azomahou Théophile T.,
Boucekkine Raouf,
NguyenVan Phu
Publication year - 2012
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2012.00191.x
Subject(s) - economics , monopoly , investment (military) , natural monopoly , general equilibrium theory , microeconomics , subsidy , capital (architecture) , technological change , consumption (sociology) , free entry , production (economics) , monetary economics , macroeconomics , market economy , history , social science , archaeology , sociology , politics , political science , law
We develop a general equilibrium vintage capital model with energy‐saving technological progress and an explicit energy sector to study the impact of investment subsidies on equilibrium investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy‐consuming and scrapping is endogenous. Two polar market structures are considered for the energy market: free entry and natural monopoly. First, it is shown that investment subsidies may induce a larger equilibrium investment into cleaner technologies either under free entry or natural monopoly. However, in the latter case, this happens if and only if the average cost is decreasing fast enough. Second, larger diffusion rates do not necessarily mean lower energy consumption at equilibrium, which may explain certain empirical observations.