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Pollution Accumulation and Firm Incentives to Accelerate Technological Change Under Uncertain Private Benefits


  • Cesare Dosi


  • Michele Moretto


The paper explores the relationships between the design of public incentives and the policy-maker's desired timing of abandonment of a polluting technology, when this requires an irreversible private investment and the firm faces uncertain appropriable benefits from the technological change. Two regulatory approaches are examined. Firstly, we consider the quite common one of lowering the private investment cost, through a subsidy, in order to bridge the gap between the private and the policy-maker's desired timing of environmental innovation. Secondly, we consider a policy scenario where the regulator, instead of simply lowering the investment's rental price, also stimulates abandonment of the polluting technology by reducing – through appropriate announcements – the uncertainty surrounding the technological switch's private profitability. We then compare the two approaches and show the latter's benefits, in terms of the policy's effectiveness and/or budgetary savings. Copyright Kluwer Academic Publishers 1997

Suggested Citation

  • Cesare Dosi & Michele Moretto, 1997. "Pollution Accumulation and Firm Incentives to Accelerate Technological Change Under Uncertain Private Benefits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 10(3), pages 285-300, October.
  • Handle: RePEc:kap:enreec:v:10:y:1997:i:3:p:285-300
    DOI: 10.1023/A:1026426932710

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    References listed on IDEAS

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    6. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-1012, December.
    7. Fisher, Anthony C & Hanemann, W Michael, 1990. " Information and the Dynamics of Environmental Protection: The Concept of the Critical Period," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(3), pages 399-414.
    8. John V. Leahy, 1993. "Investment in Competitive Equilibrium: The Optimality of Myopic Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 1105-1133.
    9. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
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    Cited by:

    1. Cesare Dosi & Michele Moretto, 2010. "Environmental Innovation, War Of Attrition And Investment Grants," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 12(01), pages 37-59.
    2. Luca Corato, 2016. "Investment stimuli under government present-biased time preferences," Journal of Economics, Springer, vol. 119(2), pages 101-111, October.
    3. Di Corato, Luca, 2012. "Optimal conservation policy under imperfect intergenerational altruism," Journal of Forest Economics, Elsevier, vol. 18(3), pages 194-206.
    4. Ben Youssef, Slim & Zaccour, Georges, 2014. "Absorptive Capacity, R&D Spillovers, Emissions Taxes and R&D Subsidies," Strategic Behavior and the Environment, now publishers, vol. 4(1), pages 41-58, April.
    5. Ben Jebli, Mehdi & Ben Youssef, Slim, 2014. "Timing of adoption of clean technologies, transboundary pollution and international trade," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-31.
    6. van Soest, Daan P., 2005. "The impact of environmental policy instruments on the timing of adoption of energy-saving technologies," Resource and Energy Economics, Elsevier, vol. 27(3), pages 235-247, October.
    7. Slim Ben Youssef, 2015. "Timing of Adoption of Clean Technologies by Regulated Monopolies," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(1), pages 77-92, March.
    8. Slim Ben Youssef, 2010. "Adoption of a cleaner technology by a monopoly under incomplete information," Economics Bulletin, AccessEcon, vol. 30(1), pages 734-743.
    9. Löfgren, Åsa & Millock, Katrin & Nauges, Céline, 2007. "Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments - An Application to the Swedish Pulp and Paper Industry and Energy Sector," Working Papers in Economics 249, University of Gothenburg, Department of Economics.
    10. Luca Corato & Michele Moretto & Sergio Vergalli, 2013. "Land conversion pace under uncertainty and irreversibility: too fast or too slow?," Journal of Economics, Springer, vol. 110(1), pages 45-82, September.
    11. Baker, Erin & Clarke, Leon & Shittu, Ekundayo, 2008. "Technical change and the marginal cost of abatement," Energy Economics, Elsevier, vol. 30(6), pages 2799-2816, November.
    12. Ben Youssef, Slim, 2010. "Adoption of a clean technology using a renewable energy," MPRA Paper 25576, University Library of Munich, Germany.
    13. Chih-Jou Chen & Chia-Chin Chang & Shiu-Wan Hung, 2011. "Influences of Technological Attributes and Environmental Factors on Technology Commercialization," Journal of Business Ethics, Springer, vol. 104(4), pages 525-535, December.
    14. Cesare Dosi & Michele Moretto, 2001. "Is Ecolabelling a Reliable Environmental Policy Measure?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 18(1), pages 113-127, January.
    15. Moretto, Michele, 2000. "Irreversible investment with uncertainty and strategic behavior," Economic Modelling, Elsevier, vol. 17(4), pages 589-617, December.


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