Induced Technological Change Under Technology Competition

32 Pages Posted: 27 Feb 2003

See all articles by Reyer Gerlagh

Reyer Gerlagh

Tilburg University - Tilburg University School of Economics and Management

Date Written: June 2002

Abstract

We develop a partial one-sector model with capital, natural resources, and labor as production factors, and endogenous technological change through research. Production exhibits increasing returns to scale. We compare the response of output and resource use to a change in resource prices with and without induced technological change (ITC). It is shown that induced technological change is insignificant in reducing resource use when there is one representative technology and output demand is inelastic to prices. In contrast, substantial gains from ITC appear when we allow for two competing technologies that can be employed for production, while these technologies are good substitutes. Also, in case of two technologies, conditions are specified under which multiple balanced growth paths exist, and it is shown that because of ITC, a temporary resource tax can lock out the economy from a resource intensive path and lock in to a resource extensive path.

Keywords: Induced Technological Change, Environmental Taxes, Partial Equilibrium

JEL Classification: H23, O31, O41, Q42, Q43

Suggested Citation

Gerlagh, Reyer, Induced Technological Change Under Technology Competition (June 2002). FEEM Working Paper No. 5.2003. Available at SSRN: https://ssrn.com/abstract=383464 or http://dx.doi.org/10.2139/ssrn.383464

Reyer Gerlagh (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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