Instrument choice for environmental protection when technological innovation is endogenous

Carolyn Fischer*, Ian W.H. Parry, William A. Pizer

*Corresponding author for this work

Research output: Contribution to JournalReview articleAcademicpeer-review

Abstract

This paper compares, qualitatively and quantitatively, the welfare effects of emissions taxes, auctioned emissions permits, and free (grandfathered) permits, when technological innovation is endogenous. We find that there is no unambiguous case for preferring any of these policy instruments. The relative welfare ranking of instruments depends on the costs of innovation, the extent to which innovations can be imitated, the slope and level of the marginal environmental benefit function, and the number of polluting firms. We illustrate the types of situations when there can be significant welfare discrepancies between the policies and when there are not.

Original languageEnglish
Pages (from-to)523-545
Number of pages23
JournalJournal of Environmental Economics and Management
Volume45
Issue number3
DOIs
Publication statusPublished - May 2003

Keywords

  • Environmental policies
  • Externalities
  • Technological innovation
  • Welfare impacts

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