Permits, Standards, and Technology Innovation

Juan-Pablo Montero, Catholic University of Chile, Santiago, Chile; and Massachusetts Institute of Technology , Cambridge, Massachusetts 02139

11/24/2008
(Original Publish Date: 10/3/2001)

I compare environmental R&D incentives offered by four policy instruments emission standards, performance standards, tradeable permits, and auctioned permits in the presence of oligopoly permits and output markets. Because R&D incentives depend on direct and strategic effects, standards can offer greater incentives than do permits. If markets are perfectly competitive, however, tradeable and auctioned permits provide equal incentives that are similar to those offered by emission standards and greater than those offered by performance standards.