FISCAL INCENTIVES TO CONSUMER INNOVATION - THE USE OF UNLEADED PETROLIN EUROPE

This paper explores the diffusion of unleaded fuel in eight European e conomies with the particular objective of evaluating fiscal incentives to consumer innovation as an instrument of technology policy. The uni que diffusion patterns observed in each country reflect differing chan ges in the composition of the car stock and the choices of consumers w ith cars capable of using both leaded and unleaded fuel. Data restrict ions limit the detailed analysis to the second of these two issues. Es timating a consumer diffusion model using Error Correction techniques the results indicate that the main driving forces (apart from changes in the composition of the car stock) have been country specific trend terms that reflect changing tastes and learning. In general, fiscal in centives have not played a major role in the diffusion process. We att ribute this to the limited extent of these incentives and argue that g iven the estimated elasticities larger incentives would have generated a much more significant impact. Other policy conclusions are also dra wn. (C) 1998 Elsevier Science B.V. All rights reserved.