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Taxes, permits, and the diffusion of a new technology

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  • Coria, Jessica

Abstract

This study looks at the effects of the choice between taxes and permits on the pattern of adoption of a new (pollution) emissions abatement technology. It uses a dynamic setting, where the regulator observes the arrival and initial use of the technology and determines the optimal ex post amount of emissions before firms start to adopt the technology. In the model here, the adoption benefits and costs depend on the number of firms that are already using the technology. Thus, each firm decides the optimal date to adopt the technology, considering its benefits and costs, as well as the advantage they will gain over their rivals, producing a sequence of adoption that is "diffused" into the industry over time. With this framework, the study shows that when the output demand is elastic, auctioned permits induce an earlier diffusion than taxes.

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Bibliographic Info

Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 31 (2009)
Issue (Month): 4 (November)
Pages: 249-271

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Handle: RePEc:eee:resene:v:31:y:2009:i:4:p:249-271

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Web page: http://www.elsevier.com/locate/inca/505569

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Keywords: Environmental policy Industrial pollution Policy instruments Taxes Permits Technological diffusion;

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References

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  1. van Soest, Daan P., 2005. "The impact of environmental policy instruments on the timing of adoption of energy-saving technologies," Resource and Energy Economics, Elsevier, vol. 27(3), pages 235-247, October.
  2. Gersbach, Hans & Glazer, Amihai, 1999. "Markets and regulatory hold-up problems," University of California Transportation Center, Working Papers qt76f9604n, University of California Transportation Center.
  3. Geroski, P. A., 2000. "Models of technology diffusion," Research Policy, Elsevier, vol. 29(4-5), pages 603-625, April.
  4. Nelissen, Dagmar & Requate, Till, 2004. "Pollution-Reducing and Resource-Saving Technological Progress," Economics Working Papers 2004,07, Christian-Albrechts-University of Kiel, Department of Economics.
  5. Daniel Phaneuf & Till Requate, 2002. "Incentives for Investment in Advanced Pollution Abatement Technology in Emission Permit Markets with Banking," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(3), pages 369-390, July.
  6. Jennifer F. Reinganum, 1981. "Market Structure and the Diffusion of New Technology," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 618-624, Autumn.
  7. Juan-Pablo Montero, 2002. "Market Structure and Environmental Innovation," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 293-325, November.
  8. Hoppe, Heidrun C., 2000. "Second-mover advantages in the strategic adoption of new technology under uncertainty," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 315-338, February.
  9. Jaffe Adam B. & Stavins Robert N., 1995. "Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S43-S63, November.
  10. Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July.
  11. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
  12. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
  13. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
  14. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
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Citations

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Cited by:
  1. Jessica Coria & Magnus Hennlock, 2012. "Taxes, permits and costly policy response to technological change," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 14(1), pages 35-60, January.
  2. Sandrine SPAETER & Julien JACOB, 2014. "Large-scale risks and technological change: What about limited liability?," Working Papers of BETA 2014-10, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  3. Rong Zhou & Kathleen Segerson, 2012. "Are Green Taxes a Good Way to Help Solve State Budget Deficits?," Sustainability, MDPI, Open Access Journal, vol. 4(6), pages 1329-1353, June.
  4. Coria, Jessica & Villegas-Palacio, Clara & Cárdenas, Juan Camilo, 2011. "Should we tax or let firms trade emissons? An experimental analysis with policy implications for developing countries," Working Papers in Economics 516, University of Gothenburg, Department of Economics.
  5. Coria, Jessica & Mohlin, Kristina, 2013. "On Refunding of Emission Taxes and Technology Diffusion," Working Papers in Economics 573, University of Gothenburg, Department of Economics.
  6. Briggs, R.J., 2011. "Prices vs. quantities in a dynamic problem: Externalities from resource extraction," Resource and Energy Economics, Elsevier, vol. 33(4), pages 843-854.
  7. Endres, Alfred & Friehe, Tim, 2011. "Incentives to diffuse advanced abatement technology under environmental liability law," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 30-40, July.
  8. Alfred Endres & Bianca Rundshagen, 2013. "Incentives to Diffuse Advanced Abatement Technology Under the Formation of International Environmental Agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 56(2), pages 177-210, October.
  9. Agliardi, Elettra & Sereno, Luigi, 2012. "Environmental protection, public finance requirements and the timing of emission reductions," Environment and Development Economics, Cambridge University Press, vol. 17(06), pages 715-739, December.
  10. Clara Villegas-Palacio & Jessica Coria, 2010. "On the interaction between imperfect compliance and technology adoption: taxes versus tradable emissions permits," Journal of Regulatory Economics, Springer, vol. 38(3), pages 274-291, December.
  11. Coria, Jessica, 2011. "Environmental crises' regulations, tradable permits and the adoption of new technologies," Resource and Energy Economics, Elsevier, vol. 33(3), pages 455-476, September.
  12. Ohler, Adrienne M., 2014. "Behavior of the firm under rate-of-return regulation with two capital inputs," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 61-69.
  13. Coria, Jessica & Villegas-Palacio, Clara, 2010. "Targeted Enforcement and Aggregate Emissions With Uniform Emission Taxes," Working Papers in Economics 455, University of Gothenburg, Department of Economics.

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