Environmental Policy Flexibility, Search and Innovation
Year: 2009 Volume: 59 Issue: 5 Pages: 426-441
Abstract: It has long been argued that the implementation of flexible policy instruments, such as environmentally-related taxes and tradable permits, is likely to lead to greater technological innovation than more prescriptive forms of regulation such as technology-based standards. One of the principle reasons for such an assertion is that they give firms stronger incentives to search for the optimal technological means to meet a given environmental objective. While the theoretical case for the use of flexible policy instruments is well-developed, empirical evidence remains limited. Drawing upon a database of “environmental” patent applications from a cross-section of 73 countries over the period 2001–2003, evidence is provided for the positive effect of “flexibility” of environmental policy regime on innovation. This impact is additional to, and distinct from, the effect of policy stringency.
JEL classification: Q55, Q56, Q58
Keywords: environmental policy, innovation, flexibility
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