The political economy of the green technology sector: A study about institutions, diffusion and efficiency

This paper discusses aspects related to the green technology sector (GT sector) in Germany. In a first step institutional reforms enabling diffusion of green technologies are analyzed. Cost arguments are also taken into account. In a second step a theoretical model developed by Tanguay et al. (Public Choice 120:1-27, 2004) is modified in order to evaluate the efficiency of the institutional setting in a political economy framework. The model is able to show that command and control policies (CCPs) are accompanied by cost-inefficiencies depending on the political weight of technology related interests groups. We further come to the result that relatively high marginal production costs may generate suboptimal high diffusion of a certain GT j. For relatively low marginal production costs policy induced demand may also be too low.