Abstract
Besicles uncertainty about on-going private benefits, voluntary abandonment of a polluting technology may be (further) delayed if switching costs are expected to decline over time, because of positive extemalities stemming from the diffusion of the new (« green ») production process. In this paper we examine the implications of these sources of inertia on the design of investment grants aimed at accelerating environmental innovation. We show that although « network externalities » tend to decelerate spontaneous (decentralized) technological change, they provide the regulator with the opportunity of saving public funds, by targeting grants to agent(s) with lower switching costs, instead of subsidizing the entire industry indiscriminately.
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