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Linking Environmental and Innovation Policy

  • Gerlagh , Reyer

    (University of Manchester)

  • Kverndokk, Snorre

    (Ragnar Frisch Centre for Economic Research)

  • Rosendahl, Knut Einar

    (Research Department, Statistics Norway)

This paper addresses the timing and interdependence between innovation and environmental policy in a model of research and development (R&D). On a first-best path the environmental tax is set at the Pigouvian level, independent of innovation policy. With infinite patent lifetime, the R&D subsidy should be constant and independent of the state of the environment. However, with finite patent lifetime, optimal innovation policy depends on the stage of the environmental problem. In the early stages of an environmental problem, abatement research should be subsidized at a high level and this subsidy should fall monotonically over time to stimulate initial R&D investments. Alternatively, with a constant R&D subsidy, patents’ length should initially have a very long life-time but this should be gradually shortened. In a second-best situation with no deployment subsidy for abatement equipment, we find that the environmental tax should be high compared to the Pigouvian levels when an abatement industry is developing, but the relative difference falls over time. That is, environmental policies will be accelerated compared to first-best.

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File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2008/Memo-10-2008.pdf
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Paper provided by Oslo University, Department of Economics in its series Memorandum with number 10/2008.

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Length: 27 pages
Date of creation: 10 Jun 2008
Date of revision:
Handle: RePEc:hhs:osloec:2008_010
Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
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