| Abstract: | The process of technological change in pollution control is broken into three basic steps: innovation, diffusion, and optimal agency response. Firm incentives to promote these steps are then examined under five regulatory regimes: direct controls, emission subsidies, emission taxes, free marketable permits, and auctioned marketable permits. On a relative basis, emission taxes and auctioned permits provide the highest firm incentives to promote technological change; at times, free permits generate lower incentives. Direct controls, which are common regulatory tools, usually provide the lowest relative firm incentives to promote technological change. |
