How Large Are the Welfare Gains from Technological Innovation Induced by Environmental Policies?

This paper examines whether the welfare gains from technological innovation that reduces future abatement costs are larger or smaller than the "Pigouvian" welfare gains from optimal pollution control. The relative welfare gains from innovation depend on three key factors - the initially optimal level of abatement, the speed at which innovation reduces future abatement costs, and the discount rate. We calculate the welfare gains from innovation under a variety of different scenarios. Mostly they are less than the Pigouvian welfare gains. To be greater, innovation must reduce abatement costs substantially and quickly and the initially optimal abatement level must be fairly modest.


Issue Date:
2002
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/10621
Total Pages:
29
JEL Codes:
Q16; Q28; O32; O33
Series Statement:
Discussion Paper 02-57




 Record created 2017-04-01, last modified 2017-04-04

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