AbstractThis paper extends the theoretical analysis of the effects of innovation diffusion subsidies. Assuming that: (i) the seller cannot precommit to future sale prices, (ii) buyers have rational expectations, (iii) the subsidies may change over time and (iv) adoption levels remain below the efficient ones, it is shown that subsidies may decrease social welfare. Furthermore, when a percentage of the sale price is subsidized both the rhythm and final extent of diffusion may be reduced and the surplus of the …
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