The paper examines the Porter and induced-innovation hypotheses in a firm model where: (i) the firm has a vintage capital technology with two complementary factors, energy and capital ; (ii) scrapping is endogenous; (iii) technological progress is energy-saving and endogenous through purposive R&D investment; (iv) the innovation rate increases with R&D investment and decreases with complexity; (v) the firm is subject to emission quotas which put an upper bound on its energy consumption at any date; (vi) energy and capital prices are exogenous. Balanced growth paths are first characterized, and a comparative static analysis is performed to study a kind of long-term Porter and induced-innovation hypotheses. In particular, it is shown that tighter emission quotas do not prevent firms to grow in the long-run, thanks to endogenous innovation, but they have an inverse effect on the growth rate of profits. Some short-term dynamics are also produced, particularly, to analyze the role of initial conditions and energy prices in optimal firm behaviour subject to environmental regulation. Among numerous results, we show that (i) firms which are historically “small” polluters find it optimal to massively pollute in the short run: during the transition, new and clean machines will co-exist with old and dirty machines in the productive sectors, implying an unambiguously dirty transition; (ii) higher energy prices induce a shorter lifetime for capital goods but they depress investment in both new capital and R&D, featuring a kind of reverse Hicksian mechanism.
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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number
2008_11.
Find related papers by JEL classification: C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis D21 - Microeconomics - - Production and Organizations - - - Firm Behavior D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounting
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Raouf Boucekkine & David de la Croix & Omar Licandro, 2006.
"Vintage Capital,"
Economics Working Papers
ECO2006/8, European University Institute.
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BOUCEKKINE, Raouf & DE LA CROIX, David & LICANDRO, Omar, 2006.
"Vintage capital,"
CORE Discussion Papers
2006024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)