Optimal Timing of Adoption of a Green Technology

We study the optimal timing of adoption of a cleaner technology and its effects on the rate of growth of an economy in the context of an AK endogenous growth model. We show that the results depend upon the behavior of the marginal utility of environmental quality with respect to consumption. When it...

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Bibliographic Details
Published in:Environmental & resource economics 2007-01, Vol.36 (1), p.35-55
Main Authors: Cunha-e-Sá, Maria A, Reis, Ana B
Format: Article
Language:English
Subjects:
Capital costs
Clean technology
Consumption
cost of adoption
Costs
Developing countries
Economic growth
Elasticity
Endogenous growth
Environmental economics
Environmental policy
Environmental quality
growth
Growth models
Industrialized nations
innovation adoption
International
International agreements
LDCs
optimal timing of adoption
Pollution
Pollution control
Q20
Studies
Technological change
Technology
Technology adoption
Trade restrictions
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Summary:We study the optimal timing of adoption of a cleaner technology and its effects on the rate of growth of an economy in the context of an AK endogenous growth model. We show that the results depend upon the behavior of the marginal utility of environmental quality with respect to consumption. When it is increasing, we derive the capital level at the optimal timing of adoption. We show that this capital threshold is independent of the initial conditions on the stock of capital, implying that capital-poor countries tend to take longer to adopt. Also, country-specific characteristics, as the existence of high barriers to adoption, may lead to different capital thresholds for different countries. If the marginal utility of environmental quality decreases with consumption, a country should never delay adoption; the optimal policy is either to adopt immediately or, if adoption costs are “too high”, to never adopt. The policy implications of these results are discussed in the context of the international debate surrounding the environmental political agenda.
ISSN:0924-6460
1573-1502
DOI:10.1007/s10640-006-9045-8