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Economic Policy and Technology Choice of Heterogeneous Producers

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  • Michael Hübler
  • Gregor Schwerhoff

Abstract

This article introduces a new Hopenhayn-Melitz-type model of heterogeneous producers with endogenous technology choice. Different from previous trade models, it describes smallholder producers in rural areas of developing countries in the context of environment and development economics. Shocks (climate change) and various policies affect the producers’ endogenous choice between market entry or exit and between simple or advanced technology. This adds new margins of adjustment to models used in this context. Based on these mechanisms, the theoretical analysis identifies a novel type of the rebound effect via market entry. The numerical application to coffee production in rural Vietnam shows that secondary effects of the shocks, such as changes in the number of producers, can be larger than the original impact. Technology-supporting policies can have unintended detrimental side effects on less productive producers.

Suggested Citation

  • Michael Hübler & Gregor Schwerhoff, 2023. "Economic Policy and Technology Choice of Heterogeneous Producers," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(5), pages 1369-1404.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/724517
    DOI: 10.1086/724517
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    Cited by:

    1. Ferguson, Shon & Heijmans, Roweno J.R.K., 2023. "Climate Policy and Trade in Polluting Technologies," Working Paper Series 1470, Research Institute of Industrial Economics.

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