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How Large Are the Welfare Gains from Technological Innovation Induced by Environmental Policies?

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  • Parry, Ian W.H.
  • Pizer, William A.
  • Fischer, Carolyn

Abstract

This paper examines whether the welfare gains from technological innovation that reduces future abatement costs are larger or smaller than the "Pigouvian" welfare gains from optimal pollution control. The relative welfare gains from innovation depend on three key factors - the initially optimal level of abatement, the speed at which innovation reduces future abatement costs, and the discount rate. We calculate the welfare gains from innovation under a variety of different scenarios. Mostly they are less than the Pigouvian welfare gains. To be greater, innovation must reduce abatement costs substantially and quickly and the initially optimal abatement level must be fairly modest.

Suggested Citation

  • Parry, Ian W.H. & Pizer, William A. & Fischer, Carolyn, 2002. "How Large Are the Welfare Gains from Technological Innovation Induced by Environmental Policies?," Discussion Papers 10621, Resources for the Future.
    • Handle: RePEc:ags:rffdps:10621
    DOI: 10.22004/ag.econ.10621
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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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