A Tale of Two Market Failures: Technology and Environmental Policy
AbstractMarket failures associated with environmental pollution interact with market failures associated with the innovation and diffusion of new technologies. These combined market failures provide a strong rationale for a portfolio of public policies that foster emissions reduction as well as the development and adoption of environmentally beneficial technology. Both theory and empirical evidence suggest that the rate and direction of technological advance is influenced by market and regulatory incentives, and can be cost-effectively harnessed through the use of economicincentive based policy. In the presence of weak or nonexistent environmental policies, investments in the development and diffusion of new environmentally beneficial technologies are very likely to be less than would be socially desirable. Positive knowledge and adoption spillovers and information problems can further weaken innovation incentives. While environmental technology policy is fraught with difficulties, a long-term view suggests a strategy of experimenting with policy approaches and systematically evaluating their success.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-04-38.
Date of creation: 22 Oct 2004
Date of revision:
technology; research and development; environment; externality; policy;
Other versions of this item:
- Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2005. "A tale of two market failures: Technology and environmental policy," Ecological Economics, Elsevier, vol. 54(2-3), pages 164-174, August.
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-ENE-2006-01-24 (Energy Economics)
- NEP-ENV-2006-01-24 (Environmental Economics)
- NEP-INO-2006-01-24 (Innovation)
- NEP-PBE-2006-01-24 (Public Economics)
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