Adam B. Jaffe

Technological Change and the Environment

Environmental policy discussions increasingly focus on issues related to technological change. This is partly because the environmental consequences of social activity are frequently affected by the rate and direction of technological change, and partly because environmental policy interventions can themselves create constraints and incentives that have significant effects on the path of technological progress. This paper, prepared as a chapter draft for the forthcoming Handbook of Environmental Economics (North-Holland/Elsevier Science), summarizes for environmental economists current thinking on technological change in the broader economics literature, surveys the growing economic literature on the interaction between technology and the environment, and explores the normative implications of these analyses. We begin with a brief overview of the economics of technological change, and then examine three important areas where technology and the environment intersect: the theory and empirical evidence of induced innovation and the related literature on the effects of environmental policy on the creation of new, environmentally friendly technology; the theory and empirics of environmental issues related to technology diffusion; and analyses of the comparative technological impacts of alternative environmental policy instruments. We conclude with suggestions for further research on technological change and the environment.

Environmental Policy and Technological Change

The relationship between technological changeand environmental policy has receivedincreasing attention from scholars and policymakers alike over the past ten years. This ispartly because the environmental impacts ofsocial activity are significantly affected bytechnological change, and partly becauseenvironmental policy interventions themselvescreate new constraints and incentives thataffect the process of technologicaldevelopments. Our central purpose in thisarticle is to provide environmental economistswith a useful guide to research ontechnological change and the analytical toolsthat can be used to explore further theinteraction between technology and theenvironment. In Part 1 of the article, weprovide an overview of analytical frameworksfor investigating the economics oftechnological change, highlighting key issuesfor the researcher. In Part 2, we turn ourattention to theoretical analysis of theeffects of environmental policy ontechnological change, and in Part 3, we focuson issues related to the empirical analysis oftechnology innovation and diffusion. Finally,we conclude in Part 4 with some additionalsuggestions for research.

The U.S. patent system in transition: policy innovation and the innovation process

Abstract This paper surveys the major changes in patent policy and practice that have occured in the last two decades in the U.S., and reviews the existing analyses by the economists that attempt to measure the impacts these changes have had on the processes of technological change. It also reviews the broader theoretical and empirical literature that bears on the expected effects of changes in patent policy. Despite the significance of the policy changes and the wide availability of detailed data relating to patenting, robust conclusions regarding the empirical consequences for technological innovation of changes in patent policy are few. Possible reasons for these limited results are discussed, and possible avenues for future research are suggested.

The energy paradox and the diffusion of conservation technology

Abstract We develop a framework for thinking about the ‘paradox’ of very gradual diffusion of apparently cost-effective energy-conservation technologies. Our analysis provides some keys to understanding why this technology-diffusion process is gradual, and focuses attention on the factors that cause this to be the case, including those associated with potential market failures — information problems, principal/agent slippage, and unobserved costs — and those explanations that do not represent market failures — private information costs, high discount rates, and heterogeneity among potential adopters. Additionally, our analysis indicates how alternative policy instruments — both economic incentives and direct regulations — can hasten the diffusion of energy-conserving technologies.

Energy, the Environment, and Technological Change

Within the field of environmental economics, the role of technological change has received much attention. The long-term nature of many environmental problems, such as climate change, makes understanding the evolution of technology an important part of projecting future impacts. Moreover, in many cases environmental problems cannot be addressed, or can only be addressed at great cost, using existing technologies. Providing incentives to develop new environmentally-friendly technologies then becomes a focus of environmental policy. This chapter reviews the literature on technological change and the environment. Our goals are to introduce technological change economists to how the lessons of the economics of technological change have been applied in the field of environmental economics, and suggest ways in which scholars of technological change could contribute to the field of environmental economics.

Characterizing the “technological position” of firms, with application to quantifying technological opportunity and research spillovers☆

Abstract U.S. Patent data is used to characterize the technological position of manufacturing firms. Clusters of technologically related firms are identified and compared to standard industry groups. It is shown that the productivity of R&D varies systematically across these clusters, and this variation is related to the notion of “technological opportunity”. Finally, it is shown that the productivity of a firms R&D is affected by the R&D of its technological neighbors. This is taken as evidence for “spillovers” of R&D among firms.

Demand and Supply Influences in R&D Intensity and Productivity Growth

The effects of technological opportunity, market demand and RD with respect to productivity growth, it is not possible to distinguish demand and technological opportunity effects, but spillovers are important.

Reinventing Public R&D: Patent Policy and the Commercialization of National Laboratory Technologies

When innovations are heterogeneous, it may be advantageous to provide a variety of patents. By trading off patent breadth for length, it is possible that fees are not needed in the optimal policy. We present two examples. The first is a quality-ladder model, in which innovations benefit society directly as well as through their use as building blocks to future inventions, and the rate of arrival for the future innovation is unobserved. More fertile innovations get more breadth for a shorter time. Menus may also be useful in the case of horizontal product differentiation. Copyright 2001 by the RAND Corporation.

The importance of “spillovers” in the policy mission of the advanced technology program

Government policies like the Advanced Technology Program (“ATP”) are intended, at least in part, to remedy the “market failure” inherent in the fact that a significant portion of the social benefits of new knowledge and technology are not captured by a firm that invests in R&D. ATP’s project selection, and its evaluation of the impact of its program, can be made more effective by explicitly incorporating the analysis of such “spillovers.” For project selection, this means identifying technological, organizational and economic factors that tend to oint to a large “spillover gap,” or deviation between the social and private rates of return to a proposed project. For program evaluation and assessment, it means adapting existing study methods that measure social returns to innovation in ways that explicitly capture spillover effects.

Economics of Energy Efficiency

externality An economically significant effect of an activity, the consequences of which are borne (at least in part) by parties other than the party who engages in the activity, and which are not accounted for through trade. diffusion The gradual adoption of new process or product innovations by firms and individuals. innovation The initial market introduction or commercialization of new process or product inventions. invention The development and creation of a prototype new idea, process, or piece of equipment. market barriers Disincentives to the diffusion and/or use of a good, such as high costs or prices, which may or may not represent market failures. market failures The failure of private markets to provide certain goods at all or at the most desirable level, typically arising from a situation in which multiple parties benefit from a good without decreasing one another’s benefits, and in which those who have paid for the good cannot prevent others from benefiting from it. technological change The process of invention, innovation, and diffusion whereby greater and/or higher quality outputs can be produced using fewer inputs. This article reviews economic concepts relevant to decision making about energy efficiency investments and related policy choices. We describe economic perspectives on the process of energy-saving technological change, the distinction between market failures and market barriers in energy-using product markets, and the important role that discounting plays in this area.