A tale of two market failures: Technology and environmental policy
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Market failures associated with environmental pollution interact with market failures associated with the innovation and diffusion of new technologies. These combined market failures provide a strong rationale for a portfolio of public policies that foster emissions reduction as well as the development and adoption of environmentally beneficial technology. Both theory and empirical evidence suggest that the rate and direction of technological advance is influenced by market and regulatory incentives, and can be cost-effectively harnessed through the use of economic-incentive based policy. In the presence of weak or nonexistent environmental policies, investments in the development and diffusion of new environmentally beneficial technologies are very likely to be less than would be socially desirable. Positive knowledge and adoption spillovers and information problems can further weaken innovation incentives. While environmental technology policy is fraught with difficulties, a long-term view suggests a strategy of experimenting with policy approaches and systematically evaluating their success. © 2005 Elsevier B.V. All rights reserved.
Published Version (Please cite this version)10.1016/j.ecolecon.2004.12.027
Publication InfoJaffe, Adam B; Newell, Richard G; & Stavins, Robert N (2005). A tale of two market failures: Technology and environmental policy. Ecological Economics, 54(2-3). pp. 164-174. 10.1016/j.ecolecon.2004.12.027. Retrieved from https://hdl.handle.net/10161/10267.
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Dr. Richard G. Newell is the President and CEO of Resources for the Future (RFF), an independent, nonprofit research institution that improves environmental, energy, and natural resource decisions through impartial economic research and policy engagement. From 2009 to 2011, he served as the administrator of the US Energy Information Administration, the agency responsible for official US government energy statistics and analysis. Dr. Newell is an adjunct professor at Duke University, where he