Environmental Policy and the Direction of Technical Change

Mads Greaker, Tom-Reiel Heggedal and Knut Einar Rosendahl

Scandinavian Journal of Economics, 2018, vol. 120, issue 4, 1100-1138

Abstract: Should governments direct research and development (R&D) away from “dirty” technologies towards “clean” ones? How important is this compared to carbon pricing? We address these questions with the introduction of two model features to the literature on directed technological change and the environment. We introduce decreasing returns to R&D, and allow future carbon taxes to influence current R&D decisions. Our results suggest that governments should prioritize clean R&D. Dealing with major environmental problems requires an R&D shift towards clean technology. However, in the case where most researchers are working with clean technology, both productivity spillovers and the risks of future replacement increase. Consequently, the gap between the private and social values of an innovation is greatest for clean technologies.

Date: 2018
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Citations: View citations in EconPapers (37)

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https://doi.org/10.1111/sjoe.12254

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Working Paper: Environmental Policy and the Direction of Technical Change (2017)
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