Demand-supply coevolution with multiple increasing returns: Policy analysis for unlocking and system transitions |
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Authors: | Karolina Safarzyńska [Author Vitae] Jeroen C.J.M. van den Bergh [Author Vitae] |
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Affiliation: | a Institute for Environmental Studies, Vrije Universiteit, De Boelelaan 1087, 1081 HV Amsterdam, The Netherlands b ICREA, Barcelona c Institute for Environmental Science and Technology & Department of Economics and Economic History Universitat Autònoma de Barcelona, Edifici Cn-Campus UAB 08193 Bellaterra, Spain d Faculty of Economics and Business Administration & Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands |
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Abstract: | Currently, there is much concern about how to make a transition away from environmentally unsustainable activities to sustainable ones, notably in agriculture, energy and transport sectors. The success of such a transition depends on whether one is capable of escaping the lock-in of the dominant, unsustainable technology, which is usually due to multiple lock-in factors. Here, we present a formal model to study the likelihood of market lock-in in the presence of multiple increasing returns. The proposed framework describes coevolving populations of boundedly rational consumers and innovating firms. On the demand side, we focus attention on the interdependence of consumer preferences. We examine the impact of alternative demand side specifications on the direction of innovative activities of firms. On the supply side, a technological trajectory arises from the interplay of incremental innovation, search for a new product design and marketing activities. Our framework provides a general and complete account of increasing returns on supply and demand sides, as well as their synergetic interactions. The model is used to study a number of policy instruments aimed at escaping lock-in. |
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Keywords: | C15 D01 L10 O30 |
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