The Environment and Directed Technical Change
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Acemoglu_The enviroment.pdf
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Author(s)
Acemoglu, Daron
Aghion, Philippe
Bursztyn, Leonardo
Hemous, David
Date Issued
February 2012
Journal
American Economic Review
Publisher
American Economic Association
Citation
Acemoglu, Daron et al. “The Environment and Directed Technical Change.” American Economic Review 102.1 (2012): 131–166.
Version
Author's final manuscript
Abstract
This paper introduces endogenous and directed technical change in a growth model with environmental
constraints. A unique final good is produced by combining inputs from two sectors. One
of these sectors uses “dirty” machines and thus creates environmental degradation. Research can
be directed to improving the technology of machines in either sector. We characterize dynamic
tax policies that achieve sustainable growth or maximize intertemporal welfare. We show that:
(i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be
achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves
both “carbon taxes” and research subsidies, so that excessive use of carbon taxes is avoided; (iii)
delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is
the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production
helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under
reasonable parameter values and with sufficient substitutability between inputs, it is optimal
to redirect technical change towards clean technologies immediately and optimal environmental
regulation need not reduce long-run growth.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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DOI of Published Version
http://dx.doi.org/10.1257/aer.102.1.131
https://doi.org/10.1257/aer.102.1.131
