Environmental policy and technological change.” En

FondazioneEniEnricoMatteiEnvironmentalPolicyandTechnologicalChangeAdamB.Jaffe,RichardG.NewellandRobertN.StavinsNOTADILAVORO26.2002APRIL2002ETA–EconomicTheoryandApplicationsAdamB.Jaffe,DepartmentofEconomics,BrandeisUniversityandNationalBureauofEconomicResearchRichardG.Newell,ResourcesfortheFutureRobertN.Stavins,JohnF.KennedySchoolofGovernment,HarvardUniversityandResourcesfortheFutureThispapercanbedownloadedwithoutchargeat:TheFondazioneEniEnricoMatteiNotediLavoroSeriesIndex::=XXXXXXTheopinionsexpressedinthispaperdonotnecessarilyreflectthepositionofFondazioneEniEnricoMatteiEnvironmentalPolicyandTechnologicalChangeSummaryTherelationshipbetweentechnologicalchangeandenvironmentalpolicyhasreceivedincreasingattentionfromscholarsandpolicymakersalikeoverthepasttenyears.Thisispartlybecausetheenvironmentalimpactsofsocialactivityaresignificantlyaffectedbytechnologicalchange,andpartlybecauseenvironmentalpolicyinterventionsthemselvescreatenewconstraintsandincentivesthataffecttheprocessoftechnologicaldevelopments.Ourcentralpurposeinthisarticleistoprovideenvironmentaleconomistswithausefulguidetoresearchontechnologicalchangeandtheanalyticaltoolsthatcanbeusedtoexplorefurthertheinteractionbetweentechnologyandtheenvironment.InPart1ofthearticle,weprovideanoverviewofanalyticalframeworksforinvestigatingtheeconomicsoftechnologicalchange,highlightingkeyissuesfortheresearcher.InPart2,weturnourattentiontotheoreticalanalysisoftheeffectsofenvironmentalpolicyontechnologicalchange,andinPart3,wefocusonissuesrelatedtotheempiricalanalysisoftechnologyinnovationanddiffusion.Finally,weconcludeinPart4withsomeadditionalsuggestionsforresearch.Thisarticledraws,inpart,upon:Jaffe,Newell,andStavins(2001).WearegratefulforvaluableresearchassistancefromLoriSnyderandhelpfulcommentsfromErnstBerndt,Karl-GöranMäler,LawrenceGoulder,NathanielKeohane,CharlesKolstad,IanParry,StevenPolasky,DavidPopp,VernonRuttan,ManuelTrajtenberg,JeffreyVincent,andDavidZilberman,buttheauthorsaloneareresponsibleforallremainingerrors.PreparedforEnvironmentalandResourceEconomicsSpecialIssueEditedbyRichardT.CarsonUniversityofCalifornia,SanDiegoAddressforcorrespondence:RobertN.StavinsAlbertPrattProfessorofBusinessandGovernmentJohnF.KennedySchoolofGovernmentHarvardUniversityE-mail:[e-mail],RichardG.Newell,andRobertN.Stavins*1.EconomicFrameworksandIssuesinTechnologicalChangeEconomistshaveexaminedadiversesetofissuesassociatedwithtechnologicalchangethatgowellbeyondthoseanalysesthathavefocuseddirectlyonimplicationsforenvironmentalpolicy,including:thetheoryofincentivesforresearchanddevelopment(Tirole1988;Reinganum1989;Geroski1995);themeasurementofinnovativeinputsandoutputs(Griliches1984andGriliches1998);analysisandmeasurementofexternalitiesresultingfromtheresearchprocess(Griliches1992;Jaffe1998);themeasurementandanalysisofproductivitygrowth(Jorgenson1990;Griliches1998;JorgensonandStiroh2000);diffusionofnewtechnology(KarshenasandStoneman1995;Geroski2000);theeffectofmarketstructureoninnovation(Scherer1986;Sutton1998);marketfailuresrelatedtoinnovationandappropriatepolicyresponses(MartinandScott2000);theeconomiceffectsofpubliclyfundedresearch(Davidetal.2000);theeconomiceffectsofthepatentsystem(Jaffe2000);andtheroleoftechnologicalchangeinendogenousmacroeconomicgrowth(Romer1994;GrossmanandHelpman1994).Inthispartofthearticle,weprovideaverybriefguidetosomeofthisresearch.Inparticular,weintroduceapproachesformeasuringtechnologicalchange,weexaminecriticalaspectsoftheprocessoftechnologicalchange,andwedescribemodelingapproachesandpotentialmarketfailuresrelatingtotechnologyinnovationanddiffusion.*JaffeisProfessorofEconomics,BrandeisUniversity,andResearchAssociate,NationalBureauofEconomicResearch;NewellisFellow,ResourcesfortheFuture;andStavinsisAlbertPrattProfessorofBusinessandGovernment,JohnF.KennedySchoolofGovernment,HarvardUniversity,andUniversityFellow,ResourcesfortheFuture.Thisarticledraws,inpart,upon:Jaffe,Newell,andStavins(2001).WearegratefulforvaluableresearchassistancefromLoriSnyderandhelpfulcommentsfromErnstBerndt,Karl-GöranMäler,LawrenceGoulder,NathanielKeohane,CharlesKolstad,IanParry,StevenPolasky,DavidPopp,VernonRuttan,ManuelTrajtenberg,JeffreyVincent,andDavidZilberman,buttheauthorsaloneareresponsibleforallremainingerrors.21.1.MeasurementofTechnologicalChangeThemeasurementoftherateanddirectionoftechnologicalchangerestsfundamentallyontheconceptofthetransformationfunction,(,,)0TYIt≤,(1)whereYrepresentsavectorofoutputs,Irepresentsavectorofinputs,andtistime.Equation(1)describesaproductionpossibilityfrontier,thatis,asetofcombinationsofinputsandoutputsthataretechnicallyfeasibleatapointintime.Technologicalchangeisrepresentedbymovementofthisfrontierthatmakesitpossibleovertimetousegiveninputvectorstoproduceoutputvectorsthatwerenotpreviouslyfeasible.Inmostapplications,separabilityandaggregationassumptionsa