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Competing Recombinant Technologies for Environmental Innovation: Extending Arthur's Model of Lock-In

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  • Paolo Zeppini

    (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

  • Jeroen C J M van den Bergh

    (UAB - Universitat Autònoma de Barcelona = Autonomous University of Barcelona = Universidad Autónoma de Barcelona)

Abstract

This article presents a model of sequential decisions about investments in environmentally dirty and clean technologies, which extends the path-dependence framework of B. Arthur (1989, Competing technologies, increasing returns, and lock-in by historical events, The Economic Journal, 99, pp. 116–131). This allows us to evaluate if and how an economy locked into a dirty technology can be unlocked and move towards clean technology. The main extension involves the inclusion of the effect of recombinant innovation of the two technologies. A mechanism of endogenous competition is described involving a positive externality of increasing returns to investment which are counterbalanced by recombinant innovation. We determine conditions under which lock-in can be avoided or escaped. A second extension is "symmetry breaking" of the system due to the introduction of an environmental policy that charges a price for polluting. A final extension adds a cost of environmental policy in the form of lower returns on investment implemented through a growth-depressing factor. We compare cumulative pollution under different scenarios, so that we can evaluate the combination of environmental regulation and recombinant innovation.

Suggested Citation

  • Paolo Zeppini & Jeroen C J M van den Bergh, 2011. "Competing Recombinant Technologies for Environmental Innovation: Extending Arthur's Model of Lock-In," Post-Print hal-04575578, HAL.
    • Handle: RePEc:hal:journl:hal-04575578
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