Should environmental R&D be prioritized? |
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Institution: | Oslo Metropolitan University, Pilestredet 35, Oslo 0167, Norway |
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Abstract: | An innovator may not be able to capture the full social benefit of her innovation and, therefore, governments support private R&D through various measures. We compare a market good innovation—to develop a more efficient technology to produce a standard market good—with an environmental innovation—to develop a more efficient abatement technology—that has the same potential to increase the social surplus. In the first-best outcome, which can be achieved by offering an R&D subsidy and a diffusion subsidy, the R&D subsidy should be greatest for an environmental innovation, whereas the diffusion subsidy should be greatest for a market good innovation. The ranking of the two types of subsidies reflects that the appropriability problem is greater for an environmental innovation than for a market good innovation. |
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Keywords: | R&D Environmental R&D Innovations Endogenous technological change Innovation prize Diffusion subsidy |
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