Instrument Choice for Environmental Protection When Technological Innovation is EndogenousIan Parry (), William A. Pizer and Carolyn Fischer Discussion Papers from Resources For the Future Abstract: This paper presents an analytical and numerical comparison of the welfare impacts of alternative instruments for environmental protection in the presence of endogenous technological innovation. We analyze emissions taxes and both auctioned and free (grandfathered) emissions permits. We find that under different sets of circumstances each of the three policies may induce a significantly higher welfare gain than the other two policies. In particular, the relative ranking of policy instruments can crucially depend on the ability of adopting firms to imitate the innovation, the costs of innovation, the slope and level of the marginal environmental benefit function, and the number of firms producing emissions. Moreover, although in theory the welfare impacts of policies differ in the presence of innovation, sometimes these differences are relatively small. In fact, when firms anticipate that policies will be adjusted over time in response to innovation, certain policies can become equivalent. Our analysis is simplified in a number of respects; for example, we assume homogeneous and competitive firms. Nonetheless, our preliminary results suggest there is no clear-cut case for preferring any one policy instrument on the grounds of dynamic efficiency. New Economics Papers: this item is included in nep-ene, nep-env and nep-ino Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:rff:dpaper:dp-99-04 Access Statistics for this paper More papers in Discussion Papers from Resources For the Future |
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