Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2010-10-26 Number: 10-107/1 Author-Name: Paolo Zeppini Author-Workplace-Name: University of Amsterdam Author-Name: Jeroen C.J.M. van den Bergh Author-Workplace-Name: Autonomous University of Barcelona, and VU University Amsterdam Title: Competing Recombinant Technologies for Environmental Innovation Abstract: This discussion paper resulted in a publication in 'Industry and Innovation', 2011, 18(3), 317-334.

This article presents a model of sequential decisions about investments in environmentally dirty and clean technologies, which extends the path-dependence framework of Arthur (1989). This allows us to evaluate if and how an economy locked into a dirty technology can be unlocked and move towards the clean technology. The main extension involves the inclusion of the effect of recombinant innovation of the two technologies. A mechanism of endogenous competition is described involving a positive externality of increasing returns to investment which are counterbalanced by recombinant innovation. We determine conditions under which lock-in can be avoided or escaped. A second extension is "symmetry breaking" of the the system due to the introduction of an environmental policy that charges a price for polluting. A final extension adds a cost of environmental policy in the form of lower returns on investment implemented through a growth-depressing factor. We compare cumulative pollution under different scenarios, so that we can evaluate the combination of environmental regulation and recombinant innovation. Classification-JEL: O33, Q55 Keywords: externalities, hybrid technology, lock-in, R&D, sequential decisions File-Url: https://papers.tinbergen.nl/10107.pdf File-Format: application/pdf File-Size: 1759182 bytes Handle: RePEc:tin:wpaper:20100107