American Economic Review: Vol. 102 No. 1 (February 2012)


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The Environment and Directed Technical Change

Article Citation

Acemoglu, Daron, Philippe Aghion, Leonardo Bursztyn, and David Hemous. 2012. "The Environment and Directed Technical Change." American Economic Review, 102(1): 131-66.

DOI: 10.1257/aer.102.1.131


This paper introduces endogenous and directed technical change in a growth model with environmental constraints. The final good is produced from "dirty" and "clean" inputs. We show that: (i) when inputs are sufficiently substitutable, sustainable growth can be achieved with temporary taxes/subsidies that redirect innovation toward clean inputs; (ii) optimal policy involves both "carbon taxes" and research subsidies, avoiding excessive use of carbon taxes; (iii) delay in intervention is costly, as it later necessitates a longer transition phase with slow growth; and (iv) use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire. (JEL O33, O44, Q30, Q54, Q56, Q58)

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Acemoglu, Daron (MIT and Canadian Institute for Advanced Research)
Aghion, Philippe (Harvard U and Stockholm U)
Bursztyn, Leonardo (UCLA)
Hemous, David (Harvard U)

JEL Classifications

O33: Technological Change: Choices and Consequences; Diffusion Processes
O44: Environment and Growth
Q30: Nonrenewable Resources and Conservation: General
Q54: Climate; Natural Disasters; Global Warming
Q56: Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
Q58: Environmental Economics: Government Policy

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