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Innovation and environmental policy: clean vs. dirty technical change

Author

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  • Maria A Cunha-e-Sa
  • Alexandra Leitao
  • Ana Balcao Reis

Abstract

We study a two sector endogenous growth model with environmental quality with two goods and two factors of production, one clean and one dirty. Technological change creates clean or dirty innovations. We compare the laissez-faire equilibrium and the social optimum and study first- and second-best policies. Optimal policy encourages research toward clean technologies. In a second-best world, we claim that a portfolio that includes a tax on the polluting good combined with optimal innovation subsidy policies is less costly than increasing the price of the polluting good alone. Moreover, a discriminating innovation subsidy policy is preferable to a non-discriminating one.

Suggested Citation

  • Maria A Cunha-e-Sa & Alexandra Leitao & Ana Balcao Reis, 2010. "Innovation and environmental policy: clean vs. dirty technical change," Nova SBE Working Paper Series wp548, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp548
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    References listed on IDEAS

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    Cited by:

    1. Rauscher, Michael, 2009. "Green R&D versus end-of-pipe emission abatement: A model of directed technical change," Thuenen-Series of Applied Economic Theory 106, University of Rostock, Institute of Economics.
    2. Orlov, Sergey & Rovenskaya, Elena, 2022. "Optimal transition to greener production in a pro-environmental society," Journal of Mathematical Economics, Elsevier, vol. 98(C).
    3. Elke Moser & Andrea Seidl & Gustav Feichtinger, 2014. "History-dependence in production-pollution-trade-off models: a multi-stage approach," Annals of Operations Research, Springer, vol. 222(1), pages 457-481, November.

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    More about this item

    Keywords

    Pollution; endogenous growth; innovation; environmental policy; laissez-faire equilibrium; optimal equilibrium; discriminating vs. non-discriminating; subsidies to R&D;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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