Abstract

In a model at the crossroads of Tsur and Zemel (2003) and Wirl (2013), I study the transition from a dirty to a clean technology when this latter is made more profitable with the accumulation of a stock of knowledge either by a monopoly or an oligopoly. I address the following questions: what is the optimal policy for a government if it cannot commit in the long run? Is it always possible to set tax and subsidy rates in order to induce efficiency? I find that if commitment to a tax path is impossible a tax alone is inefficient. However, if the government is able to commit in the short run, i.e if it announces its policy at each date before every other players, a subsidy to investments in knowledge, set together with the tax, can induce efficiency under the condition that the knowledge is accumulated by a monopoly. In contrast, if the knowledge is accumulated by a finite number of firms, the government’s policy is always inefficient because of a free rider issue

Practical information