The Environment and Directed Technical Change

Daron Acemoglu, Philippe Aghion, Leonardo Bursztyn and David Hemous

No 15451, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper introduces endogenous and directed technical change in a growth model with environmental constraints and limited resources. A unique final good is produced by combining inputs from two sectors. One of these sectors uses "dirty" machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare, as a function of the degree of substitutability between clean and dirty inputs, environmental and resource stocks, and cross-country technological spillovers. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both "carbon taxes" and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values (corresponding to those used in existing models with exogenous technology) and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth. We also show that in a two-country extension, even though optimal environmental policy involves global policy coordination, when the two inputs are sufficiently substitutable environmental regulation only in the North may be sufficient to avoid a global disaster.

JEL-codes: C65 O30 O31 O33 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-agr, nep-dge, nep-ene, nep-env, nep-reg and nep-res
Note: EEE EFG PE
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Citations: View citations in EconPapers (60)

Published as Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-66, February.

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Related works:
Journal Article: The Environment and Directed Technical Change (2012)
Working Paper: The Environment and Directed Technical Change (2011)
Working Paper: The Environment and Directed Technical Change (2010)
Working Paper: The Environment and Directed Technical Change (2010)
Working Paper: The Environment and Directed Technical Change (2010)
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