Abstract
We argue that expectations about future energy use affect the transition from fossil to renewables, because of an interaction between innovation and resource scarcity. The paper presents a model of directed technical change to study this interaction. We find that fossil-saving technical change erodes the incentives to implement renewables. Conversely, the anticipation of a transition to renewables diminishes the incentives to invest in fossil technology. As a result, two equilibria may arise, one with a transition to renewables and with low fossil efficiency, and one without renewables and with high fossil efficiency. Expectations determine which equilibrium arises in equilibrium.
| Original language | English |
|---|---|
| Pages (from-to) | 1371-1415 |
| Number of pages | 44 |
| Journal | International Economic Review |
| Volume | 58 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - 28 Nov 2017 |