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The Environment and Directed Technical Change

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  • Daron Acemoglu
  • Philippe Aghion
  • Leonardo Bursztyn
  • David Hemous

Abstract

This paper introduces endogenous and directed technical change in a growth model with environmental constraints and limited resources. A unique final good is produced by combining inputs from two sectors. One of these sectors uses "dirty" machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare, as a function of the degree of substitutability between clean and dirty inputs, environmental and resource stocks, and cross-country technological spillovers. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both "carbon taxes" and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values (corresponding to those used in existing models with exogenous technology) and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth. We also show that in a two-country extension, even though optimal environmental policy involves global policy coordination, when the two inputs are sufficiently substitutable environmental regulation only in the North may be sufficient to avoid a global disaster.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15451.

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Date of creation: Oct 2009
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Publication status: published as Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-66, February.
Handle: RePEc:nbr:nberwo:15451

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  1. Popp, David, 2004. "ENTICE: endogenous technological change in the DICE model of global warming," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 742-768, July.
  2. William D. Nordhaus, 2006. "The "Stern Review" on the Economics of Climate Change," NBER Working Papers 12741, National Bureau of Economic Research, Inc.
  3. Daron Acemoglu, 2009. "When Does Labor Scarcity Encourage Innovation?," NBER Working Papers 14809, National Bureau of Economic Research, Inc.
  4. Di Maria, Corrado & Valente, Simone, 2006. "The Direction of Technical Change in Capital-Resource Economies," MPRA Paper 1040, University Library of Munich, Germany.
  5. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262012634, December.
  6. Manne, Alan & Richels, Richard, 2004. "The impact of learning-by-doing on the timing and costs of CO2 abatement," Energy Economics, Elsevier, Elsevier, vol. 26(4), pages 603-619, July.
  7. Mikhail Golosov & John Hassler & Per Krusell & Aleh Tsyvinski, 2011. "Optimal Taxes on Fossil Fuel in General Equilibrium," NBER Working Papers 17348, National Bureau of Economic Research, Inc.
  8. André Grimaud & Luc Rouge, 2008. "Environment, Directed Technical Change and Economic Policy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 41(4), pages 439-463, December.
  9. Buonanno, Paolo & Carraro, Carlo & Galeotti, Marzio, 2003. "Endogenous induced technical change and the costs of Kyoto," Resource and Energy Economics, Elsevier, Elsevier, vol. 25(1), pages 11-34, February.
  10. van der Zwaan, B. C. C. & Gerlagh, R. & G. & Klaassen & Schrattenholzer, L., 2002. "Endogenous technological change in climate change modelling," Energy Economics, Elsevier, Elsevier, vol. 24(1), pages 1-19, January.
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  1. The Environment and Directed Technical Change: Acemoglu et al.
    by David Stern in Stochastic Trend on 2010-04-28 08:28:00
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