Emissions Pricing, Spillovers, and Public Investment in Environmentally Friendly Technologies

In a second-best world of below-optimal pollution pricing, the public return to R&D may be greater than under Pigouvian pricing, due to excess benefits of increasing abatement, or it may be lower, since private actors lack the incentives to take full advantage of the new, cleaner technologies. This paper uses a simple model to demonstrate the interaction between environmental policies, R&D externalities, and the social return to innovation. The results indicate that strong public support for innovation is only justified if at least a moderate emissions policy is in place and spillover effects are significant. Furthermore, in most cases, policy constraints that limit regulatory burdens tend to further limit the scope for public support, even when cost reductions allow for more stringent abatement targets. An exception is when knowledge of the policy adjustment process further reduces private innovation incentives.


Issue Date:
2004
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/10648
Total Pages:
21
JEL Codes:
Q28; O38; H23
Series Statement:
Discussion Paper 04-02




 Record created 2017-04-01, last modified 2017-08-23

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