Firm networks, coordination failures and the role of industrial policy in the decarbonization transition

A transition to a low-carbon economy requires investment in radical technological change in all major firms in the sectors that affect the economy’s demand for energy, namely mobility, freight and distribution, construction and energy-intensive manufacturing. How are the incentives of firms to make risky investments in these transitions shaped by their strategic interactions in industrial networks?

I start with the notion that technologies are complex systems and thus, that major changes in products and processes require that firms in the same value chain make complementary investments. In the context of a simple strategic model I show that this observation implies 1) that there can be coordination failures and 2) that upstream actors who enjoy a central position in current industrial networks may have poor incentives to invest in technological change.

I will suggest that coordination failures could explain the leadership of the state in past major episodes of technological innovation and change. Coordination failures and the different incentives of firms in different parts of the network also suggest the presence of “leverage points”: key players in the network whose actions can change the incentives of other players to invest in these transitions. In the rest of the talk, I will outline my plans and ideas for developing a richer modeling framework and for empirical modeling of the relationship between the properties of supply-chain networks and firms’ level of innovation.


Research Programmes