Induced technical change, adjustment costs and environmental policy modelling
In this paper I develop a neo-Schumpeterianmodel of induced technical change where firms/polluters determine their effort in environment-saving technical change. Two technological scenarios are distinguished depending on whether basic research is endogenous or exogenous. Building on this analytical setting, I show that in the presence of non-linear adjustment costs the choice of instruments of environmental policy should be tailored to the actual characteristics of the firms'/polluters' technological environment. Moreover, this analysis confirms that searching for efficient environmental policy mixes is more rewarding than focusing on single instruments, notably pollution taxation.
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