The provision of research advice and papers on topic related to “ESG practices in emerging economies and climate transition in Europe”
Coordinator: Fondazione Eni Enrico Mattei (FEEM)
Funding entity: European Investment Bank (EIB)
New innovations can only benefit society to the extent that they are adopted and used. This simple fact forms the basis for the extensive economics literature studying the drivers behind a firm’s decision to adopt a new technology.
The effect of market power on innovation adoption has been extensively discussed in the economic literature, but in many ways remains an open issue. In this project, we contribute to this literature by using data from the EIB’s 2022 “Survey of Investment and Investment Finance” (EIBIS) to investigate the effect of market power on the adoption of energy efficiency technologies in European firms.
To address the issues of endogeneity and reverse causality in the proposed analysis we rely on two different strategies. First, we identify the causal effect of market power using an instrumental variable approach. Second, we write a heterogeneous firm model with size-dependent financial constraint and mark-up. We calibrate this model using the data from EIBIS and ORBIS and estimate the parameters of interest using the method of moment. The model is used as a counterfactual to explore the role played by borrowing constraint and mark-up in influencing the adoption of energy efficiency technologies.
The research’s goal is to investigate the relationship between market power and the adoption of energy efficiency technologies in European firms.
Among the general outcomes of this project:
- Preliminary results suggesting that, on average, market power incentivises investments in energy efficiency and less polluting technologies.
- Evidence suggesting non-linear relationship, implying that market power beyond a certain level reduces investments in energy efficiency.
The results obtained in this project are expected to be useful to policy makers in understanding the drivers of adoption of energy efficient technologies. This will help in designing and implementing efficient policies for faster energy transition.