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Self-Fulfilling Prophecies in the Transition to Clean Technology

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  • Sjak Smulders
  • Sophie Zhou

Abstract

Technological lock-in has been a standard explanation for the slow take-off of clean innovation, but is hard to reconcile with forward-looking investors who anticipate the eventual switch to clean technologies. We provide an alternative explanation: strategic investment complementarities shape innovation and self-fulfilling prophecies can lead to delayed low-carbon transition. We analyze a standard directed technical change model with clean and dirty inputs. Under good input substitutability, two stable steady states co-exist, each allowing multiple transitional paths. Optimal low-carbon transition requires a Pigouvian tax rule combined with a coordination device; commitment to a Pigouvian tax trajectory cannot solve a coordination failure.

Suggested Citation

  • Sjak Smulders & Sophie Zhou, 2026. "Self-Fulfilling Prophecies in the Transition to Clean Technology," American Economic Journal: Macroeconomics, American Economic Association, vol. 18(3), pages 304-342, July.
    • Handle: RePEc:aea:aejmac:v:18:y:2026:i:3:p:304-42
    DOI: 10.1257/mac.20220316
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    References listed on IDEAS

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    1. Mikhail Golosov & John Hassler & Per Krusell & Aleh Tsyvinski, 2014. "Optimal Taxes on Fossil Fuel in General Equilibrium," Econometrica, Econometric Society, vol. 82(1), pages 41-88, January.
    2. 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 131-166, February.
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    Cited by:

    1. Inge van den Bijgaart & Åsa Löfgren, 2026. "Climate Policy for Coordination," CESifo Working Paper Series 12916, CESifo.

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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