Rabah Amir, Department of Economics (401 McClelland), University of Arizona, Tucson, AZ 85721 (ramir@eller.arizona.edu). Marc Germain, IRES—Department of Economics, Place Montesquieu, 3, 1348 Louvain-La-Neuve, Belgium. Vincent Van Steenberghe, Belgian Federal Public Service Health, Food Chain Safety and Environment, Brussels, and Department of Economics, Université Catholique de Louvain, Belgium.
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On the Impact of Innovation on the Marginal Abatement Cost Curve
Article first published online: 3 NOV 2008
DOI: 10.1111/j.1467-9779.2008.00393.x
© 2008 Wiley Periodicals, Inc.
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How to Cite
AMIR, R., GERMAIN, M. and VAN STEENBERGHE, V. (2008), On the Impact of Innovation on the Marginal Abatement Cost Curve. Journal of Public Economic Theory, 10: 985–1010. doi: 10.1111/j.1467-9779.2008.00393.x
The authors are grateful to John List and an anonymous referee for helpful feedback. This paper is an extended version of †. Earlier versions of this paper were completed and submitted independently of the related work by ‡ and §. We are grateful to referees for pointing these papers to us. In the present version, we relate and/or contrast our independent results with the counterparts from these papers.
Publication History
- Issue published online: 3 NOV 2008
- Article first published online: 3 NOV 2008
- Received February 22, 2008; Accepted June 18, 2008.
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Abstract
When modeling the effects of innovation on the marginal abatement cost (MAC) curve, many studies in environmental economics have posited, implicitly or explicitly, a uniform downward shift. The purpose of this paper is to thoroughly investigate this claim in a simple theoretical framework by introducing innovation in the production function of a price-taking, polluting firm in four economically meaningful ways. We establish that the effects of innovation on the MAC curve depend critically on the specific type of innovation, and that only innovation in end-of-pipe technology leads to a uniform downward shift of the MAC curve. A second class of results points to the fact that for other types of innovation in the overall production process, the scope for an upward shift of the MAC curve in response to innovation is easier to justify theoretically. These results call for a re-appraisal of various results in environmental policy obtained in theoretical work relying on this postulate.