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Optimal Timing of Environmental Policy: Interaction Between Environmental Taxes and Innovation Externalities

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Author Info
Gerlagh , Reyer () (Economics, School of Social Sciences)
Kverndokk , Snorre (Ragnar Frisch Centre for Economic Research)
Rosendahl , Knut Einar (Statistics Norway)

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Abstract

This paper addresses the impact of endogenous technology through research and development (R&D) and learning by doing (LbD) on the timing of environmental policy. We develop two models, the first with technological change through R&D and the second with LbD. We study the interaction between environmental taxes and innovation externalities in a dynamic economy and prove policy equivalence between the second-best R&D and the LbD model. Our analysis shows that the difference found in the literature between optimal environmental policy in R&D and LbD models can partly be traced back to the set of policy instruments available, rather than being directly linked to the source of technological innovation. Arguments for early action in LbD models carry over to a second-best R&D setting. We show that environmental taxes should be high compared to the Pigouvian levels when an abatement industry is developing. We illustrate our analysis through numerical simulations on climate change policy.

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File URL: http://www.oekonomi.uio.no/memo/memopdf/memo2606.pdf
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Publisher Info
Paper provided by Oslo University, Department of Economics in its series Memorandum with number 26/2006.

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Length: 31 pages
Date of creation: 11 Jan 2007
Date of revision:
Handle: RePEc:hhs:osloec:2006_026

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Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
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Web page: http://www.oekonomi.uio.no/indexe.html
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Related research
Keywords: Environmental policy; technological change; research and development; learning by doing;

Other versions of this item:

Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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.:

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  2. Bovenberg, A Lans & de Mooij, Ruud A, 1997. "Environmental Levies and Distortionary Taxation: Reply," American Economic Review, American Economic Association, vol. 87(1), pages 252-53, March. [Downloadable!] (restricted)
  3. Encaoua, D. & Ulph, D., 2000. "Catching-up or Leapfrogging ? The Effects of Competition on Innovation and Growth," Papiers d'Economie Mathématique et Applications 2000.97, Université Panthéon-Sorbonne (Paris 1).
    Other versions:
  4. Manne, Alan & Richels, Richard, 2004. "The impact of learning-by-doing on the timing and costs of CO2 abatement," Energy Economics, Elsevier, vol. 26(4), pages 603-619, July. [Downloadable!] (restricted)
  5. Bramoulle, Yann & Olson, Lars J., 2005. "Allocation of pollution abatement under learning by doing," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1935-1960, September. [Downloadable!] (restricted)
  6. van der Zwaan, B. C. C. & Gerlagh, R. & G. & Klaassen & Schrattenholzer, L., 2002. "Endogenous technological change in climate change modelling," Energy Economics, Elsevier, vol. 24(1), pages 1-19, January. [Downloadable!] (restricted)
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    Other versions:
  11. Liski, Matti, 2002. "Taxing average emissions to overcome the shutdown problem," Journal of Public Economics, Elsevier, vol. 85(3), pages 363-384, September. [Downloadable!] (restricted)
  12. Kverndokk, Snorre & Rosendahl, Knut Einar, 2007. "Climate policies and learning by doing: Impacts and timing of technology subsidies," Resource and Energy Economics, Elsevier, vol. 29(1), pages 58-82, January. [Downloadable!] (restricted)
  13. Hartman, Richard & Kwon, O-Sung, 2005. "Sustainable growth and the environmental Kuznets curve," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1701-1736, October. [Downloadable!] (restricted)
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    Other versions:
  15. Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1.
    Other versions:
    • Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1.
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  17. Rosendahl, Knut Einar, 2004. "Cost-effective environmental policy: implications of induced technological change," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1099-1121, November. [Downloadable!] (restricted)
  18. Rolf Golombek & Michael Hoel, 2005. "Climate Policy under Technology Spillovers," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(2), pages 201-227, 06. [Downloadable!] (restricted)
    Other versions:
  19. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  20. Rivers, Nic & Jaccard, Mark, 2006. "Choice of environmental policy in the presence of learning by doing," Energy Economics, Elsevier, vol. 28(2), pages 223-242, March. [Downloadable!] (restricted)
  21. Marvin B. Lieberman, 1984. "The Learning Curve and Pricing in the Chemical Processing Industries," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 213-228, Summer. [Downloadable!] (restricted)
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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.)

  1. Gerlagh , Reyer & Kverndokk, Snorre & Rosendahl, Knut Einar, 2008. "Linking Environmental and Innovation Policy," Memorandum 10/2008, Oslo University, Department of Economics. [Downloadable!]
    Other versions:
  2. André Grimaud & Luc Rouge, 2008. "Environment, Directed Technical Change and Economic Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 41(4), pages 439-463, December. [Downloadable!] (restricted)
  3. Tom-Reiel Heggedal, 2008. "On R&D and the undersupply of emerging versus mature technologies," Discussion Papers 571, Research Department of Statistics Norway. [Downloadable!]
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