Innovation and the Green Paradox
Innovation and the Green Paradox
This chapter presents a simple dynamic general equilibrium model of fossil fuel extraction when a backstop technology is available. We investigate the possibility of a Green-Paradox outcome as a result of technological progress of a backstop technology. In our chapter, we identify a new channel: technological progress influences the extraction path indirectly by a change in the equilibrium interest rate. This change induces a change in the time path of extraction in the opposite direction. We show that the indirect effect can be such strong that first-period or even aggregate extraction levels rise with technological progress.
Keywords: Resource extraction, technological progress, general equilibrium, Green Paradox
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