Technological diversity and cost uncertainty

Krysiak, Frank C.. (2009) Technological diversity and cost uncertainty. The B.E. Journal of Economic Analysis & Policy, Vol. 9, H. 1 , Article 53.

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Official URL: http://edoc.unibas.ch/dok/A5253189

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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.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Umweltökonomie (Krysiak)
UniBasel Contributors:Krysiak, Frank Christian
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:de Gruyter
Note:Publication type according to Uni Basel Research Database: Journal article
Last Modified:22 Mar 2012 14:29
Deposited On:22 Mar 2012 14:11

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