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Green Paradox and Directed Technical Change: The Effect of Subsidies to Clean R&D

  • Julien Daubanes
  • André Grimaud
  • Luc Rougé

We borrow standard assumptions from the non-renewable-resource-taxation and from the directed-technical-change literatures, to take a full account of the incentives to perform R&D activities in a dirty-resource sector and in a clean-resource-substitute sector. We show that a gradual rise in the subsidies to clean R&D activities causes a less rapid resource extraction, because it enhances the long-run resource productivity. Our result contradicts the green-paradox conjecture that technical improvements in resource substitutes accelerate resource extraction. Sector-specific innovation activities are tantamount to competing economic projects; general equilibrium with several R&D sectors implies no-arbitrage conditions that give rise to not-so-intuitive results.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4334.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4334
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