Second-Best Climate Agreements and Technology Policy
AbstractWe study second-best climate agreements in the presence of technology spillovers within and across countries, where the technology externalities within each country are corrected through a domestic subsidy of R&D investments. We compare the properties of two types of international climate agreements when the inter-country externalities from R&D are not regulated through the climate agreement. With an international agreement on emission quotas, the equilibrium R&D subsidy is lower than the socially optimal subsidy. The equilibrium subsidy is even lower if the climate agreement instead dictates that a common carbon tax should be imposed in all countries. Under a quota agreement, total quotas should be set low enough for the price of carbon to exceed the Pigovian level, whereas the opposite may be true under a tax agreement. We also show that social costs are higher under a second-best tax agreement than under a second-best quota agreement.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.
Volume (Year): advances.6 (2006)
Issue (Month): 1 ()
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Find related papers by JEL classification:
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
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- Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
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