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An evolving risk perspective for policy instrument choice in sustainability transitions
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Kitzing, Lena, Fitch-Roy, Oscar, Islam, Marco and Mitchell, Catherine (2020) An evolving risk perspective for policy instrument choice in sustainability transitions. Environmental Innovation and Societal Transitions, 35 . pp. 369-382. doi:10.1016/j.eist.2018.12.002
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Official URL: http://dx.doi.org/10.1016/j.eist.2018.12.002
Abstract
We develop the concept of evolving risk to demonstrate that the optimal policy choice between price and quantity instruments may change over time. Drawing from system innovation, evolutionary concepts and modern financial and transaction cost economics, we analyze dynamic cost and welfare impacts of instrument choice under uncertainty. In early market deployment of niche technologies, economic and system-innovation arguments suggest price instruments can stabilize revenues and decrease market risks for investors. This accelerates deployment without necessarily compromising economic efficiency. Protective policies that work well for niche technologies should, however, be used cautiously during market upscaling and diffusion, due to the changing nature of risks. We use theoretic arguments and a case to demonstrate that a gradual shift towards quantity control may become preferable for welfare maximization under certain circumstances. Solar photovoltaics in Germany serves as illustrative case, where auctions (a form of quantity control) succeeded feed-in tariffs (a price instrument).
| Item Type: | Journal Article | ||||||||
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Strategy & International Business Faculty of Social Sciences > Warwick Business School |
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| Journal or Publication Title: | Environmental Innovation and Societal Transitions | ||||||||
| Publisher: | Elsevier BV | ||||||||
| ISSN: | 2210-4224 | ||||||||
| Official Date: | June 2020 | ||||||||
| Dates: |
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| Volume: | 35 | ||||||||
| Page Range: | pp. 369-382 | ||||||||
| DOI: | 10.1016/j.eist.2018.12.002 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
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