A percolation model of eco-innovation diffusion: the relationship between diffusion, learning economies and subsidies
Simona Cantono & Gerald Silverberg
#2008-025
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.
JEL Codes: C61, H23, O32, O33
Key words: Innovation diffusion, learning economies, percolation,
networks, heterogeneous agents, technology subsidies, environmental
technologies
UNU-MERIT Working Papers
ISSN 1871-9872