Entice: Endogenous Technological Change in the Dice Model of Global Warming

56 Pages Posted: 8 Jun 2003 Last revised: 6 Mar 2022

See all articles by David Popp

David Popp

Syracuse University - Department of Public Administration; National Bureau of Economic Research (NBER)

Date Written: June 2003

Abstract

Despite growing empirical evidence of the link between environmental policy and innovation, most economic models of environmental policy treat technology as exogenous. For long-term problems such as climate change, this omission can be significant. In this paper, I modify the DICE model of climate change (Nordhaus 1994, Nordhaus and Boyer 2000) to allow for induced innovation in the energy sector. Ignoring induced technological change overstates the welfare costs of an optimal carbon tax policy by 8.3 percent. However, cost-savings, rather than increased environmental benefits, appear to drive the welfare gains, as the effect of induced innovation on emissions and mean global temperature is small. Sensitivity analysis shows that potential crowding out of other R&D and market failures in the R&D sector are the most important limiting factors to the potential of induced innovation. Differences in these key assumptions explain much of the variation in the findings of other similar models.

Suggested Citation

Popp, David C., Entice: Endogenous Technological Change in the Dice Model of Global Warming (June 2003). NBER Working Paper No. w9762, Available at SSRN: https://ssrn.com/abstract=414260

David C. Popp (Contact Author)

Syracuse University - Department of Public Administration ( email )

Syracuse, NY
United States
315-443-2482 (Phone)
315-443-1075 (Fax)

HOME PAGE: http://faculty.maxwell.syr.edu/dcpopp/index.html

National Bureau of Economic Research (NBER)

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