Linking Environmental and Innovation Policy

27 Pages Posted: 11 Sep 2008

See all articles by Reyer Gerlagh

Reyer Gerlagh

Tilburg University - Center and Faculty of Economics and Business Administration

Snorre Kverndokk

Ragnar Frisch Centre for Economic Research

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Date Written: July 11, 2008

Abstract

This paper addresses the timing and interdependence between innovation and environmental policy in a model of research and development (R&D). On a first-best path the environmental tax is set at the Pigouvian level, independent of innovation policy. With infinite patent lifetime, the R&D subsidy should be constant and independent of the state of the environment. However, with finite patent lifetime, optimal innovation policy depends on the stage of the environmental problem. In the early stages of an environmental problem, abatement research should be subsidized at a high level and this subsidy should fall monotonically over time to stimulate initial R&D investments. Alternatively, with a constant R&D subsidy, patents' length should initially have a very long life-time but this should be gradually shortened. In a second-best situation with no deployment subsidy for abatement equipment, we find that the environmental tax should be high compared to the Pigouvian levels when an abatement industry is developing, but the relative difference falls over time. That is, environmental policies will be accelerated compared to first-best.

Keywords: Environmental Policy, Research and Development, Innovation Subsidies, Patents

JEL Classification: H21, O30, Q42

Suggested Citation

Gerlagh, Reyer and Kverndokk, Snorre and Rosendahl, Knut Einar, Linking Environmental and Innovation Policy (July 11, 2008). FEEM Working Paper No. 53.2008. Available at SSRN: https://ssrn.com/abstract=1158443 or http://dx.doi.org/10.2139/ssrn.1158443

Reyer Gerlagh (Contact Author)

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Snorre Kverndokk

Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0349 Oslo
Norway
+47 22958811 (Phone)
+47 22958825 (Fax)

HOME PAGE: http://www.frisch.uio.no/cv/snorrek_eng.html

Knut Einar Rosendahl

Norwegian University of Life Sciences ( email )

PO Box 5033
NO-1432 Aas
Norway
+47 64966117 (Phone)

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway
+47 21094954 (Phone)
+47 21094963 (Fax)

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