Laura Castellucci, Laurea, Alessio D'Amato, Ph.D, and Stefano Gorini, Laurea. Sefemeq, Faculty of Economics - Tor Vergata University, Via Columbia, 2, Rome, 00133, Italy
Increasing returns to adopting a particular technology or system can be crucial in determining technology "lock-in" phenomena (Arthur (1989), Unruh (2000)). Lock-in implies that, once led down a particular technological path, the barriers to switching to another, possibly more efficient one, may be prohibitive.
Environmental quality is significantly affected by technical progress and lock-in effects. Indeed, industrial economies have become locked-into fossil fuel-based energy and transportation systems through path dependent processes driven by technological and institutional increasing returns to scale. The above mentioned issues are largely ignored by standard environmental policy literature concerning the adoption of environment friendly technologies, as well as by dynamic models of technology diffusion.
Recognizing, correcting and, even more, avoiding technological lock-in phenomena, is a very ambitious task, plagued by uncertainty as well as rigidities that increase over time as the economy is increasingly locked-in along unsustainable paths.
Two “natural” questions arise: why do economies choose technologies in a myopic way? Why do environmental and energy authorities fail to correct the path when it is not yet highly costly to do it, strengthening the lock-in of the economy?
One possible answer to these two questions is the presence of a rent seeking behavior and the importance of interest groups in shaping environmental regulation. The study of interest groups in environmental policy has been the subject of a large strand of literature (that could be called ‘positive theory of environmental policy’, see Oates and Portney (2003)). On the other hand, incorrect technological policies can also be related to the non rival and non excludable nature of the “technological” good. Indeed, technical progress might be seen as a striking example of a positive production spillover. Research investment differs from physical investment because the asset produced by the research process is difficult to exclude others from using it. As first noted in the classic paper by Arrow (1962), this means that the creator of this asset will typically fail to appropriate most of the social returns it generates. This "appropriability problem" is likely to lead to significant underinvestment by private firms in R&D, relative to the social optimum (Spence (1984)).
The aim of this paper is to extend the standard (or ex post) environmental economics literature to account for inefficiency effects of rent seeking and free riding incentives in the evaluation of the proper instruments to control environmental quality and to boost environment friendly technical change. The two main issues of excludability and rent seeking must be addressed in a setting where lock in and other long run distortions in environment related technologies can be accounted for properly. Under this respect, the work by Carrillo-Hermosilla (2006) can be a very good starting point, as the author unveils the weaknesses of the standard approach to environmental interventions, based on economic and regulatory instruments, meant to control the negative impacts of production on the environment only ex post.