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Environmental Policy and the Direction of Technical Change

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Listed:
  • Mads Greaker
  • Tom‐Reiel Heggedal
  • Knut Einar Rosendahl

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.

Suggested Citation

  • Mads Greaker & Tom‐Reiel Heggedal & Knut Einar Rosendahl, 2018. "Environmental Policy and the Direction of Technical Change," Scandinavian Journal of Economics, Wiley Blackwell, vol. 120(4), pages 1100-1138, October.
    • Handle: RePEc:bla:scandj:v:120:y:2018:i:4:p:1100-1138
    DOI: 10.1111/sjoe.12254
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    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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