Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86892
Authors: 
Zeppini, Paolo
van den Bergh, Jeroen C.J.M.
Year of Publication: 
2010
Series/Report no.: 
Tinbergen Institute Discussion Paper 10-107/1
Abstract: 
This article presents a model of sequential decisions about investments in environmentally dirty and clean technologies, which extends the path-dependence framework of Arthur (1989). This allows us to evaluate if and how an economy locked into a dirty technology can be unlocked and move towards the clean technology. The main extension involves the inclusion of the effect of recombinant innovation of the two technologies. A mechanism of endogenous competition is described involving a positive externality of increasing returns to investment which are counterbalanced by recombinant innovation. We determine conditions under which lock-in can be avoided or escaped. A second extension is symmetry breaking of the the system due to the introduction of an environmental policy that charges a price for polluting. A final extension adds a cost of environmental policy in the form of lower returns on investment implemented through a growth-depressing factor. We compare cumulative pollution under different scenarios, so that we can evaluate the combination of environmental regulation and recombinant innovation.
Subjects: 
externalities
hybrid technology
lock-in
R&D
sequential decisions
JEL: 
O33
Q55
Document Type: 
Working Paper

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