Optimal Timing of Environmental Policy. Interaction between Environmental Taxes and Innovation Externalities
AbstractThis 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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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 493.
Date of creation: Feb 2007
Date of revision:
Environmental policy; technological change; research and development; learning by doing;
Other versions of this item:
- Reyer Gerlagh & Snorre Kverndokk & Knut Einar Rosendahl, 2007. "Optimal Timing of Environmental Policy; Interaction Between Environmental Taxes and Innovation Externalities," Working Papers 2007.35, Fondazione Eni Enrico Mattei.
- Gerlagh , Reyer & Kverndokk , Snorre & Rosendahl , Knut Einar, 2007. "Optimal Timing of Environmental Policy: Interaction Between Environmental Taxes and Innovation Externalities," Memorandum 26/2006, Oslo University, Department of Economics.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-10 (All new papers)
- NEP-ENE-2007-02-10 (Energy Economics)
- NEP-ENV-2007-02-10 (Environmental Economics)
- NEP-INO-2007-02-10 (Innovation)
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