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Technology and Time Inconsistency

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  • Bård Harstad

Abstract

Policy makers have time-inconsistent preferences if they fear losing power or are endowed with hyperbolic discount factors. Politicians may thus seek to influence future policy choices, for example, by investing in green technologies that motivate later politicians to act sustainably. I show that optimal investment subsidies are larger for technologies that are strategic complements to future investments, that are further upstream in the supply chain, or that are characterized by longer maturity. Time inconsistency can rationalize subsidies at similar levels as market failures such as externalities can. Furthermore, the two are superadditive: time inconsistency and strategic investments are especially important for long-term policies associated with externalities.

Suggested Citation

  • Bård Harstad, 2020. "Technology and Time Inconsistency," Journal of Political Economy, University of Chicago Press, vol. 128(7), pages 2653-2689.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/707024
    DOI: 10.1086/707024
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    Cited by:

    1. Balbus, Łukasz & Reffett, Kevin & Woźny, Łukasz, 2022. "Time-consistent equilibria in dynamic models with recursive payoffs and behavioral discounting," Journal of Economic Theory, Elsevier, vol. 204(C).
    2. Harstad, Bård, 2023. "Pledge-and-review bargaining," Journal of Economic Theory, Elsevier, vol. 207(C).
    3. Harstad, Bård, 2021. "A Theory of Pledge-and-Review Bargaining," Memorandum 5/2022, Oslo University, Department of Economics, revised 21 Jun 2021.
    4. Bach Dong-Xuan & Philippe Bich, 2024. "Dynamic choices, temporal invariance and variational discounting," Papers 2408.05632, arXiv.org.
    5. Nesje, Frikk, 2020. "Cross-dynastic Intergenerational Altruism," Working Papers 0678, University of Heidelberg, Department of Economics.
    6. Edenhofer, Ottmar & Lessmann, Kai & Tahri, Ibrahim, 2024. "Asset pricing and the carbon beta of externalities," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    7. Colombo, Luca & Labrecciosa, Paola & Van Long, Ngo, 2022. "A dynamic analysis of international environmental agreements under partial cooperation," European Economic Review, Elsevier, vol. 143(C).
    8. Liu Yao & Mukherjee Arijit, 2024. "Lobbying for Tariff Protection, International Technology Licensing and Consumer Surplus," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 24(1), pages 117-139, January.
    9. Chiara Criscuolo & Guy Lalanne, 2024. "A New Approach for Better Industrial Strategies," Journal of Industry, Competition and Trade, Springer, vol. 24(1), pages 1-26, December.
    10. Franziska Funke & Linus Mattauch & Inge van den Bijgaart & H. Charles J. Godfray & Cameron Hepburn & David Klenert & Marco Springmann & Nicolas Treich, 2022. "Toward Optimal Meat Pricing: Is It Time to Tax Meat Consumption?," Review of Environmental Economics and Policy, University of Chicago Press, vol. 16(2), pages 219-240.
    11. Christopher P. Chambers & Federico Echenique & Alan D. Miller, 2023. "Decreasing Impatience," American Economic Journal: Microeconomics, American Economic Association, vol. 15(3), pages 527-551, August.
    12. Bård Harstad & Kjetil Storesletten, 2023. "Conservation by Lending," CESifo Working Paper Series 10533, CESifo.
    13. Josse Delfgaauw & Otto H. Swank, 2023. "The Political Economy of Commitment to Policies," Tinbergen Institute Discussion Papers 23-060/VII, Tinbergen Institute.
    14. Arnaud Goussebaïle, 2024. "Democratic Climate Policies with Overlapping Generations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(5), pages 1249-1273, May.
    15. Ahlvik, Lassi & van den Bijgaart, Inge, 2024. "Screening green innovation through carbon pricing," Journal of Environmental Economics and Management, Elsevier, vol. 124(C).
    16. Sjur Didrik Flam, 2023. "Golden rule in cooperative commons," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 8(1), pages 57-74, December.
    17. Funke, Franziska & Mattauch, Linus & van den Bijgaart, Inge & Godfray, Charles & Hepburn, Cameron & Klenert, David & Springmann, Marco & Treich, Nicholas, 2021. "Is Meat Too Cheap? Towards Optimal Meat Taxation," INET Oxford Working Papers 2021-08, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    18. Arnaud Goussebaïle, 2022. "Democratic Climate Policies with Overlapping Generations," CER-ETH Economics working paper series 22/374, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    19. Kalk, Andrei & Sorger, Gerhard, 2023. "Climate policy under political pressure," Journal of Environmental Economics and Management, Elsevier, vol. 122(C).
    20. Bård Harstad, 2020. "The Conservation Multiplier," CESifo Working Paper Series 8283, CESifo.

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