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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)

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.sv.uio.no/econ/english/research/memorandum/pdf-files/2006/Memo-26-2006.pdf
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Bibliographic 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

Contact details of provider:
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
Email:
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;

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References

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  1. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
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  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).
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  5. Rolf Golombek & Michael Hoel, 2003. "Climate Policy under Technology Spillovers," Working Papers 2003.38, Fondazione Eni Enrico Mattei.
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  7. 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.
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    • Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1, October.
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  21. 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.
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Citations

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Cited by:
  1. Gerlagh , Reyer & Kverndokk, Snorre & Rosendahl, Knut Einar, 2008. "Linking Environmental and Innovation Policy," Memorandum 10/2008, Oslo University, Department of Economics.
  2. Geir H. Bjertnæs & Tom-Reiel Heggedal & Karl Jacobsen, 2009. "Knowledge spillovers and the timing of R&D policy," DEGIT Conference Papers c014_042, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Grimaud, André & Rougé, Luc, 2007. "Environment, Directed Technical Change and Economic Policy," IDEI Working Papers 384, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Tom-Reiel Heggedal, 2008. "On R&D and the undersupply of emerging versus mature technologies," Discussion Papers 571, Research Department of Statistics Norway.
  5. Ziesemer, Thomas & Michaelis, Peter, 2011. "Strategic environmental policy and the accumulation of knowledge," Structural Change and Economic Dynamics, Elsevier, vol. 22(2), pages 180-191, June.

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