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Technological diversity and cost uncertainty
JournalArticle (Originalarbeit in einer wissenschaftlichen Zeitschrift)
 
ID 104566
Author(s) Krysiak, Frank C.
Author(s) at UniBasel Krysiak, Frank Christian
Year 2009
Title Technological diversity and cost uncertainty
Journal The B.E. Journal of Economic Analysis & Policy
Volume 9
Number 1
Pages / Article-Number Article 53
Keywords technological diversity, uncertainty, policy intervention, investment, electricity industry, monopoly
Abstract

In many industries, different technologies are used simultaneously for the production of a homogeneous good. Such diversification is socially beneficial, because it reduces the transmission of factor price volatility, like oil-price shocks, to consumer prices. Therefore, many countries have implemented policies aimed at increasing technological diversification. The question is whether such policies are necessary. We use a two-stage investment model to address this question in the setting of perfect competition and of a monopoly. We show that factor price uncertainty leads to diversification, if capital is not too expensive, and that this diversification is due to each firm investing in a diversified technology portfolio. An important implication of this form of diversification is that technological diversity is socially optimal, even in the case of a monopoly. Thus policy intervention is unnecessary and might even be detrimental.

Publisher de Gruyter
edoc-URL http://edoc.unibas.ch/dok/A5253189
Full Text on edoc No
Digital Object Identifier DOI 10.2202/1935-1682.2168
ISI-Number WOS:000272270600003
Document type (ISI) Article
 
   

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