Adjustable Product Attributes, Indirect Network Effects, and Subsidy Design: The Case of Electric Vehicles

This paper develops a structural model of endogenous product attribute choice in the presence of indirect network effects to study electric vehicle (EV) subsidies. Using data on the German EV market, I find that a support scheme almost doubled EV sales but substantially affected EVs’ price and driving range. These adjustments create a trade-off between optimizing different policy objectives when designing subsidies. Large purchase subsidies maximize EV sales, whereas large charging station subsidies maximize consumer and total surplus. The results suggest that maximizing EV sales can lead to unintended consequences in the form of price and range adjustments. (JEL D12, D22, D85, H25, L14, L62, R41)