Green Paradox and Directed Technical Change: The Effect of Subsidies to Clean R&D

30 Pages Posted: 29 Jul 2013

See all articles by Julien Daubanes

Julien Daubanes

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Andre Grimaud

GREMAQ, IDEI and LEERNA - University of Toulouse 1

Luc Rouge

Toulouse Business School

Date Written: July 29, 2013

Abstract

We borrow standard assumptions from the non-renewable-resource-taxation and from the directed-technical-change literatures, to take a full account of the incentives to perform R&D activities in a dirty-resource sector and in a clean-resource-substitute sector. We show that a gradual rise in the subsidies to clean R&D activities causes a less rapid resource extraction, because it enhances the long-run resource productivity. Our result contradicts the green-paradox conjecture that technical improvements in resource substitutes accelerate resource extraction. Sector-specific innovation activities are tantamount to competing economic projects; general equilibrium with several R&D sectors implies no-arbitrage conditions that give rise to not-so-intuitive results.

Keywords: non-renewable resources, directed technical change, green paradox, environmental policy, R&D subsidies

JEL Classification: Q320, O320, O410

Suggested Citation

Daubanes, Julien and Grimaud, Andre and Rouge, Luc, Green Paradox and Directed Technical Change: The Effect of Subsidies to Clean R&D (July 29, 2013). CESifo Working Paper Series No. 4334, Available at SSRN: https://ssrn.com/abstract=2302502 or http://dx.doi.org/10.2139/ssrn.2302502

Julien Daubanes (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

HOME PAGE: http://www.cer.ethz.ch/resec/people/juliend

Andre Grimaud

GREMAQ, IDEI and LEERNA - University of Toulouse 1 ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France
+33 561 12 86 04 (Phone)
+33 561 12 86 37 (Fax)

Luc Rouge

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

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