Instrument choice for environmental protection when technological innovation is endogenous

Journal Article

This paper compares, qualitatively and quantitatively, the welfare effects of emissions taxes, auctioned emissions permits, and free (grandfathered) permits, when technological innovation is endogenous. We find that there is no unambiguous case for preferring any of these policy instruments. The relative welfare ranking of instruments depends on the costs of innovation, the extent to which innovations can be imitated, the slope and level of the marginal environmental benefit function, and the number of polluting firms. We illustrate the types of situations when there can be significant welfare discrepancies between the policies and when there are not. © 2003 Published by Elsevier Science (USA).

Full Text

Duke Authors

Cited Authors

  • Fischer, C; Parry, IWH; Pizer, WA

Published Date

  • 2003

Published In

  • Journal of Environmental Economics and Management

Volume / Issue

  • 45 / 3

Start / End Page

  • 523 - 545

Digital Object Identifier (DOI)

  • 10.1016/S0095-0696(03)00002-0