TY  - JOUR
AU  - Popp,David
TI  - ENTICE: Endogenous Technological Change in the DICE Model of Global Warming
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9762
PY  - 2003
Y2  - June 2003
UR  - http://www.nber.org/papers/w9762
L1  - http://www.nber.org/papers/w9762.pdf
N1  - Author contact info:
David Popp
Associate Professor of Public Administration
Syracuse University
The Maxwell School
426 Eggers Hall
Syracuse, NY 13244-1020
Tel: 315/443-2482
Fax: 315/443-1081
E-Mail: dcpopp@maxwell.syr.edu
AB  - 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.
ER  -