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Title:Optimal timing of environmental policy: Interaction between environmental taxes and innovation externalities PDF Logo
Authors:Gerlagh, Reyer
Kverndokk, Snorre
Rosendahl, Knut Einar
Issue Date:2006
Series/Report no.:Memorandum, Department of Economics, University of Oslo 2006,26
Abstract:This paper addresses the impact of endogenous technology through research and development (R&D) and learning by doing (LbD) on the timing of environmental policy. We develop two models, the first with technological change through R&D and the second with LbD. We study the interaction between environmental taxes and innovation externalities in a dynamic economy and prove policy equivalence between the second-best R&D and the LbD model. Our analysis shows that the difference found in the literature between optimal environmental policy in R&D and LbD models can partly be traced back to the set of policy instruments available, rather than being directly linked to the source of technological innovation. Arguments for early action in LbD models carry over to a second-best R&D setting. We show that environmental taxes should be high compared to the Pigouvian levels when an abatement industry is developing. We illustrate our analysis through numerical simulations on climate change policy.
Subjects:Environmental policy
technological change
research and development
learning by doing
JEL:H21
O30
Q42
Document Type:Working Paper
Appears in Collections:Memorandum, Department of Economics, University of Oslo

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