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Induced Technological Change under Technology Competition

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  • Reyer Gerlagh

    (IVM, Institute for Environmental Studies, Vrije Universiteit, Amsterdam, The Netherlands)

Abstract

We develop a partial one-sector model with capital, natural resources, and labor as production factors, and endogenous technological change through research. Production exhibits increasing returns to scale. We compare the response of output and resource use to a change in resource prices with and without induced technological change (ITC). It is shown that induced technological change is insignificant in reducing resource use when there is one representative technology and output demand is inelastic to prices. In contrast, substantial gains from ITC appear when we allow for two competing technologies that can be employed for production, while these technologies are good substitutes. Also, in case of two technologies, conditions are specified under which multiple balanced growth paths exist, and it is shown that because of ITC, a temporary resource tax can lock out the economy from a resource intensive path and lock in to a resource extensive path.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2003.5.

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Date of creation: Jan 2003
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Handle: RePEc:fem:femwpa:2003.5

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Related research

Keywords: Induced technological change; environmental taxes; partial equilibrium;

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Cited by:
  1. Gerlagh, Reyer & Lise, Wietze, 2005. "Carbon taxes: A drop in the ocean, or a drop that erodes the stone? The effect of carbon taxes on technological change," Ecological Economics, Elsevier, vol. 54(2-3), pages 241-260, August.
  2. David Popp, 2003. "ENTICE: Endogenous Technological Change in the DICE Model of Global Warming," NBER Working Papers 9762, National Bureau of Economic Research, Inc.
  3. Reyer Gerlagh & Marjan W. Hofkes, 2004. "Time Profile of Climate Change Stabilization Policy," Working Papers 2004.139, Fondazione Eni Enrico Mattei.
  4. Jérémy Laurent-Lucchetti & Andrew Leach, 2006. "Induced innovation in a decentralized model of climate change," Cahiers de recherche 06-02, HEC Montréal, Institut d'économie appliquée.

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