Affiliation:
1. Department of Economics, University of Arizona, NBER, and CEPR (email: )
Abstract
Generalizing models of directed technical change, I show that complementarities between innovations and factors of production (here, energy resources) can drive transitions away from a dominant sector. In a calibrated numerical implementation, the economy gradually transitions energy supply from coal to gas and then to renewable energy, even in the absence of policy. The welfare-maximizing tax on carbon emissions is J-shaped, immediately redirects most research to renewables, and rapidly transitions energy supply directly to renewables. The emission tax is twice as valuable as either the welfare-maximizing research subsidy or the welfare-maximizing mandate to use renewable resources. (JEL H23, O31, O33, Q35, Q41, Q54)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance
Reference62 articles.
1. Directed Technical Change
2. Equilibrium Bias of Technology
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