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Competing Recombinant Technologies for Environmental Innovation

Paolo Zeppini () and Jeroen van den Bergh

No 10-107/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper resulted in a publication in 'Industry and Innovation', 2011, 18(3), 317-334. This article presents a model of sequential decisions about investments in environmentally dirty and clean technologies, which extends the path-dependence framework of Arthur (1989). This allows us to evaluate if and how an economy locked into a dirty technology can be unlocked and move towards the clean technology. The main extension involves the inclusion of the effect of recombinant innovation of the two technologies. A mechanism of endogenous competition is described involving a positive externality of increasing returns to investment which are counterbalanced by recombinant innovation. We determine conditions under which lock-in can be avoided or escaped. A second extension is "symmetry breaking" of the the system due to the introduction of an environmental policy that charges a price for polluting. A final extension adds a cost of environmental policy in the form of lower returns on investment implemented through a growth-depressing factor. We compare cumulative pollution under different scenarios, so that we can evaluate the combination of environmental regulation and recombinant innovation.

Keywords: externalities; hybrid technology; lock-in; R&D; sequential decisions (search for similar items in EconPapers)
JEL-codes: O33 Q55 (search for similar items in EconPapers)
Date: 2010-10-26
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