OPTIMAL POLLUTION TAXES AND ENDOGENOUS TECHNOLOGICAL-PROGRESS

The optimal pollution tax becomes complicated when allowance is made f or endogenous innovation, under a patent system. However, if anything, it is below marginal environmental damages, to counteract monopoly pr icing by the patent holder, the common pool effect associated with res earch and a possible excess of patent holder revenue over the social b enefits from innovation when environmental damages are convex. In case s where patents are weak at securing appropriability, for example when rivals can easily imitate around patented technologies, awarding rese arch prizes or contracts is probably more efficient than raising the p ollution tax.