In this article, Mads Greaker and Kristoffer Midttømme study the diffusion of a clean substitute to a dirty durable and find that consumer utility of both durables increases in their respective market shares due to network effects.
For this article, the researchers just received the prestigious Erik Kempe award by the European Association of Environmental and Resource Economists. Part of the jury’s motivation indicate that:
[… ] Greaker and Midttømme have contributed to the academic literature by examining optimal taxation of externality-generating goods in a novel and arguably important setting, and by addressing a timely policy problem of clear practical relevance.
Their analysis of network effects highlights how interactions of consumers should be considered for public policies, as we do here in COBHAM.