Colorado College Working Paper No. 2009-07
42 Pages Posted: 17 Aug 2009
Date Written: August 16, 2009
This paper considers the challenges to the dissemination of environmental innovation. Following a brief exploration of the legal and regulatory regimes surrounding environmental technologies, the paper examines diffusion mechanisms, market factors, social characteristics and political elements that facilitate and complicate dissemination. Given the importance of innovation to economic development and growth, the diffusion of innovation is of great interest to economists and policymakers alike.
• Many of the challenges to innovation and the dissemination of technology in general are found in the field of eco-innovation. The three principal problems to be considered are: asymmetric information, market power, and externalities. In addition, uncertainty regarding the qualities of the innovation as well as future prices of inputs will complicate the adoption process.
• The rate of diffusion is dependent on the cost-effectiveness of the new technology. Given this, the firms with the greatest potential profits associated with the innovation will be the first adopters. In addition, new technologies are often capital intensive and associated with size and scale economies, requiring access to investment capital.
• Numerous studies find that the incentives to adopt new innovations are greater with market-based tools than with regulatory tools. In an international context, uncertainty and informational problems are exacerbated and contracting solutions are even more difficult to achieve.
• New technologies frequently challenge existing legal systems in new ways and foster the evolution of the law. However, innovative industries would benefit from greater predictability in the legal realm. This is particularly important since the scope of patent protection, as well as the incomplete enforcement of IP rights, mean that the effective strength of intellectual property rights are determined by the implementation of the legal system.
• Market forces and incentives may facilitate the dissemination of environmental innovations or create insurmountable barriers to adoption. In this context, it is important to be aware of the lessons learned about innovation: innovation responds quickly to incentives; innovation in a given field experiences diminishing returns over time; the social returns to environmental research are high; and the type of policy used affects the nature of new innovations.
• Green technology is characterized by two market failures, the public goods nature of knowledge and environmental externalities.
• While developing nations frequently claim that strong intellectual property rights on carbon abatement technologies hinder developing countries’ greenhouse gas abatement efforts, it has been shown that IPRs do not constitute as significant a barrier as claimed since a variety of technologies exist for reducing emissions. In many cases, IPR protected technologies are not necessarily more costly than those not covered.
• There are a number of characteristics and circumstances of developing nations that hinder innovation: a lack of scientists and researchers, brain drain, small market size, the lack of infrastructure, importantly telecommunications infrastructure, the quality the business environment and governance conditions, bureaucratic climate and the formal/informal regulations regarding economic transactions, cash-strapped governments and inability to make public investments in research and infrastructure.
• Environmental issues are frequently local or regional in nature, so local knowledge and solutions are required. Further, many technologies are highly ecology-specific and while appropriate in one setting may be difficult to employ in another.
• Adoption is facilitated by environmental feasibility as well as cultural and political acceptance. Firms that effectively respond to such pressure and signals are more apt to succeed. It is important to note that consumer perceptions of eco-friendly are unclear, and often hinder diffusion and pricing
• It is critical that technology recipients have the prerequisite knowledge and scientific base to best exploit the information. This includes domestic private and public research laboratories and universities, in addition to a sound basis of technical skills and human capital. Each of these help to reduce the costs of imitation, adaption, and follow-on innovation. The greater the ‘technological distance’ of a recipient country from the global frontier, the greater the challenge of effectively incorporating information into production systems.
• Technology transfer is enhanced by stronger levels of patent protection, while acknowledging the necessity of complementary factors such as infrastructure, effective government policies and regulations, knowledge institutions, access to credit and venture capital, skilled human capital, and networks for research collaboration. Economic studies have found that while IP protection facilitates trade flows of patented goods into large and middle-income nations, but has no impact on poor countries.
• Like many new technologies, environmental innovations may require significant on-going support, training and assistance with maintenance. It is essential to consider the skills required for continued use and repair of new technologies at the onset of adoption.
This paper reveals that it is a combination of market, regulatory and cultural conditions that contribute to the arena in which dissemination and adoption of environmental technologies take place. Fundamentally for technology transfer to take place in developing nations a number of obstacles must be overcome: uncertainty surrounding the costs and benefits of adoption, asymmetric information on the value of the innovation, financial and skill requirements, externalities, and regulatory barriers. While scholars are still exploring why, where and how adoption takes place, lessons learned indicate that policymakers should seek to reduce uncertainty and foster transparency as they pursue dissemination to developing nations.
Keywords: eco-innovation, patent, environment, green, innovation
JEL Classification: H23, H4, H54, K32, O13, O14, O19, O3, Q2, Q3, Q4
Suggested Citation: Suggested Citation
Johnson, Daniel K. N. and Lybecker, Kristina M., Challenges to Technology Transfer: A Literature Review of the Constraints on Environmental Technology Dissemination (August 16, 2009). Colorado College Working Paper No. 2009-07. Available at SSRN: https://ssrn.com/abstract=1456222 or http://dx.doi.org/10.2139/ssrn.1456222
By David Popp