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Innovation and Environmental Policy: Clean vs. Dirty Technical Change

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  • Cunha-e-Sa, Maria Antonieta
  • Leitao, Alexandra
  • Reis, Ana Balcao

Abstract

We study a two sector endogenous growth model with environmental quality with two goods and two factors of production, one clean and one dirty. Technological change creates clean or dirty innovations. We compare the laissez-faire equilibrium and the social optimum and study first- and second-best policies. Optimal policy encourages research toward clean technologies. In a second-best world, we claim that a portfolio that includes a tax on the polluting good combined with optimal innovation subsidy policies is less costly than increasing the price of the polluting good alone. Moreover, a discriminating innovation subsidy policy is preferable to a non-discriminating one. JEL codes: H23, O3, O41

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Bibliographic Info

Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp548.

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Length: 35 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:unl:unlfep:wp548

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Related research

Keywords: Pollution; Endogenous Growth; Innovation; Environmental Policy; Laissez-Faire Equilibrium; Optimal Equilibrium; Discriminating vs. Non-Discriminating Subsidies to R&D;

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References

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  1. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
  2. Elbasha, Elamin H. & Roe, Terry L., 1995. "On Endogenous Growth: The Implications of Environmental Externalities," Bulletins 7493, University of Minnesota, Economic Development Center.
  3. John C. Williams & Charles I. Jones, 1995. "Too much of a good thing? The economics of investment in R&D," Finance and Economics Discussion Series 95-39, Board of Governors of the Federal Reserve System (U.S.).
  4. Grimaud, Andre, 1999. "Pollution Permits and Sustainable Growth in a Schumpeterian Model," Journal of Environmental Economics and Management, Elsevier, vol. 38(3), pages 249-266, November.
  5. Hart, Rob, 2004. "Growth, environment and innovation--a model with production vintages and environmentally oriented research," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1078-1098, November.
  6. Lans Bovenberg, A. & Smulders, Sjak, 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Journal of Public Economics, Elsevier, vol. 57(3), pages 369-391, July.
  7. Reis, Ana Balcao, 2001. "Endogenous Growth and the Possibility of Eliminating Pollution," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 360-373, November.
  8. Charles I. Jones & John C. Williams, . "Measuring the Social Return to R&D," Working Papers 97002, Stanford University, Department of Economics.
  9. Grimaud, André & Rougé, Luc, 2007. "Environment, Directed Technical Change and Economic Policy," IDEI Working Papers 384, Institut d'Économie Industrielle (IDEI), Toulouse.
  10. Francesco Ricci, 2007. "Environmental policy and growth when inputs are differentiated in pollution intensity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(3), pages 285-310, November.
  11. Di Maria Corrado & Smulders Sjak A., 2005. "Trade Pessimists vs Technology Optimists: Induced Technical Change and Pollution Havens," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-27, January.
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Cited by:
  1. Rauscher, Michael, 2009. "Green R&D versus end-of-pipe emission abatement: A model of directed technical change," Thuenen-Series of Applied Economic Theory 106, University of Rostock, Institute of Economics.

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