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Pollution Accumulation and Firm Incentives to Accelerate Technological Change Under Uncertain Private Benefits

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  • Cesare Dosi

    ()

  • Michele Moretto

Abstract

The paper explores the relationships between the design of public incentives and the policy-maker's desired timing of abandonment of a polluting technology, when this requires an irreversible private investment and the firm faces uncertain appropriable benefits from the technological change. Two regulatory approaches are examined. Firstly, we consider the quite common one of lowering the private investment cost, through a subsidy, in order to bridge the gap between the private and the policy-maker's desired timing of environmental innovation. Secondly, we consider a policy scenario where the regulator, instead of simply lowering the investment's rental price, also stimulates abandonment of the polluting technology by reducing – through appropriate announcements – the uncertainty surrounding the technological switch's private profitability. We then compare the two approaches and show the latter's benefits, in terms of the policy's effectiveness and/or budgetary savings. Copyright Kluwer Academic Publishers 1997

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File URL: http://hdl.handle.net/10.1023/A:1026426932710
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 10 (1997)
Issue (Month): 3 (October)
Pages: 285-300

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Handle: RePEc:kap:enreec:v:10:y:1997:i:3:p:285-300

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: environmental policy; technological change; irreversibility;

References

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  1. Carlo Carraro & Domenico Siniscalco, 1992. "Environmental innovation policy and international competition," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(2), pages 183-200, March.
  2. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-12, December.
  3. Arrow, Kenneth J & Fisher, Anthony C, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, MIT Press, vol. 88(2), pages 312-19, May.
  4. Arora Seema & Cason Timothy N., 1995. "An Experiment in Voluntary Environmental Regulation: Participation in EPA's 33/50 Program," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 271-286, May.
  5. Olsen, Trond E. & Stensland, Gunnar, 1992. "On optimal timing of investment when cost components are additive and follow geometric diffusions," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 39-51, January.
  6. 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.
  7. Fisher, Anthony C & Hanemann, W Michael, 1990. " Information and the Dynamics of Environmental Protection: The Concept of the Critical Period," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(3), pages 399-414.
  8. Leahy, John V, 1993. "Investment in Competitive Equilibrium: The Optimality of Myopic Behavior," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1105-33, November.
  9. Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March.
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Citations

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Cited by:
  1. Chih-Jou Chen & Chia-Chin Chang & Shiu-Wan Hung, 2011. "Influences of Technological Attributes and Environmental Factors on Technology Commercialization," Journal of Business Ethics, Springer, vol. 104(4), pages 525-535, December.
  2. Ben Youssef, Slim, 2008. "Adoption of a Cleaner Technology by a Monopoly Under Incomplete Information," MPRA Paper 9879, University Library of Munich, Germany, revised Jul 2008.
  3. Ben Youssef, Slim, 2010. "Timing of adoption of clean technologies by regulated monopolies," MPRA Paper 42470, University Library of Munich, Germany, revised Sep 2012.
  4. Cesare Dosi & Michele Moretto, 2007. "Environmental Innovation, War of Attrition and Investment Grants," "Marco Fanno" Working Papers 0045, Dipartimento di Scienze Economiche "Marco Fanno".
  5. repec:hal:journl:halshs-00272041 is not listed on IDEAS
  6. Ben Jebli, Mehdi & Ben Youssef, Slim, 2014. "Timing of adoption of clean technologies, transboundary pollution and international trade," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 8(19), pages 1-31.
  7. Löfgren, Åsa & Millock, Katrin & Nauges, Céline, 2007. "Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments - An Application to the Swedish Pulp and Paper Industry and Energy Sector," Working Papers in Economics 249, University of Gothenburg, Department of Economics.
  8. Cesare Dosi & Michele Moretto, 2001. "Is Ecolabelling a Reliable Environmental Policy Measure?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 18(1), pages 113-127, January.
  9. Ben Youssef, Slim, 2010. "Adoption of a clean technology using a renewable energy," MPRA Paper 25576, University Library of Munich, Germany.
  10. Ben Youssef, Slim & Zaccour, Georges, 2014. "Absorptive Capacity, R&D Spillovers, Emissions Taxes and R&D Subsidies," Strategic Behavior and the Environment, now publishers, vol. 4(1), pages 41-58, April.
  11. Luca Di Corato & Michele Moretto & Sergio Vergalli, 2011. "Land Conversion Pace under Uncertainty and Irreversibility: too fast or too slow?," Working Papers 2011.84, Fondazione Eni Enrico Mattei.
  12. Baker, Erin & Clarke, Leon & Shittu, Ekundayo, 2008. "Technical change and the marginal cost of abatement," Energy Economics, Elsevier, vol. 30(6), pages 2799-2816, November.

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