An information perspective on dynamic efficiency in environmental policy

Technological change, reflecting accumulating information and its applicati on by key decision takers, is recognized to be the best prospect for remedy ing environmental problems such as rising levels of greenhouse gases. The e ffectiveness of price signals in driving beneficial innovation is reviewed in the context of theories of the firm and of technological path dependency arising from returns to scale related to pervasive learning-by-doing. Apar t from this critique, computations of the comparative dynamic analysis of a particular case involving learning by doing shows price signals such as Pi govian taxes to be higher cost, under policy-relevant parameter selections, than a novel alternative instrument, proportional abatement obligations. D irections for further research are suggested. (C) 2000 Elsevier Science B.V . All rights reserved.