Abstract

http://ssrn.com/abstract=1668575
 
 

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The Environment and Directed Technical Change


Daron Acemoglu


Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Philippe Aghion


Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Leonardo Bursztyn


Harvard University - Department of Economics

David Hemous


INSEAD

April 28, 2010

FEEM Working Paper No. 93.2010

Abstract:     
This paper introduces endogenous and directed technical change in a growth model with environmental constraints. A unique final good is produced by combining inputs from two sectors. One of these sectors uses "dirty" machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both “carbon taxes” and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth.

Number of Pages in PDF File: 60

Keywords: Environment, Exhaustible Resources, Directed Technological Change, Innovation

JEL Classification: O30, O31, O33, C65

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Date posted: August 31, 2010  

Suggested Citation

Acemoglu, Daron and Aghion, Philippe and Bursztyn, Leonardo and Hemous, David, The Environment and Directed Technical Change (April 28, 2010). FEEM Working Paper No. 93.2010. Available at SSRN: http://ssrn.com/abstract=1668575 or http://dx.doi.org/10.2139/ssrn.1668575

Contact Information

Daron Acemoglu (Contact Author)
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Room E52-380b
Cambridge, MA 02142
United States
617-253-1927 (Phone)
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Centre for Economic Policy Research (CEPR)
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United Kingdom
National Bureau of Economic Research (NBER)
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Philippe Aghion
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-495-6675 (Phone)
617-495-7730 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Leonardo Bursztyn
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
David Hemous
INSEAD ( email )
Boulevard de Constance
77305 Fontainebleau Cedex
France
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