A Tale of Two Market Failures: Technology and Environmental Policy

Adam Jaffe, Richard Newell and Robert Stavins

No 10815, Discussion Papers from Resources for the Future

Abstract: Market failures associated with environmental pollution interact with market failures associated with the innovation and diffusion of new technologies. These combined market failures provide a strong rationale for a portfolio of public policies that foster emissions reduction as well as the development and adoption of environmentally beneficial technology. Both theory and empirical evidence suggest that the rate and direction of technological advance is influenced by market and regulatory incentives, and can be cost-effectively harnessed through the use of economicincentive based policy. In the presence of weak or nonexistent environmental policies, investments in the development and diffusion of new environmentally beneficial technologies are very likely to be less than would be socially desirable. Positive knowledge and adoption spillovers and information problems can further weaken innovation incentives. While environmental technology policy is fraught with difficulties, a long-term view suggests a strategy of experimenting with policy approaches and systematically evaluating their success.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 27
Date: 2004
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: A tale of two market failures: Technology and environmental policy (2005)
Working Paper: A Tale of Two Market Failures: Technology and Environmental Policy (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:rffdps:10815

DOI: 10.22004/ag.econ.10815

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