Climate Change and Technical Progress: Impact of Informational Constraints

Abstract

In this paper we analyse a growth model that includes environmental and economic variables as well as technological progress under different informational constraints on the behavior of economic agents. To simulate the informationally constrained economy, we make use of the non-linear model predictive control technique. We compare models with exogenous and endogenous technical change as well as directed and undirected endogenous technical change under different informational structures. We show that endogenous technical change yields lower environmental damages than exogenous technical change with fully informed agents. At the same time, welfare may rise or decline depending on the efficiency of the technology in use. In the case of directed technical change, a green growth scenario generates a smaller temperature increase that, however, goes along with less output and lower welfare. This holds both for informationally constrained and unconstrained behaviour of agents. We find that the effects of informational constraints, with respect to the climate system, increase with the degree of endogeneity of technology in the model.

Environmental Regulation, Directed Technological Change, and Economic Growth: From the Perspective of Green Growth

“…In other words, δ, σ∈(0,0.5). In addition, compared to green capital, capital accumulation (Bondarev et al, 2014) is easier for brown capital. In that case, the production flexibility of green capital amid capital accumulation should not be larger than brown capital.…”

“…Figure 2 indicates that the capital allocation G/K concerns the strongly monotonically increasing concave function of the environmental regulatory strength E. With an increase in E, the environmental quality, the green capital ratio G/(K+G) increases and accelerates faster. When E=0, which represents the absence of environmental regulations, brown capital can be accumulated (Bondarev et al, 2014) relatively easily compared to green capital, which will cause brown capital to be used as much as possible during production. However, using brown capital can further pollute the environment.…”

“…Maria and Werf (2008) demonstrate that when intellectual property cannot be protected, green technological innovation drivers may be reduced, which may cause technological innovation to shift towards brown technology. The organic directionoriented technological innovation model constructed by Bondarev et al (2014) further proves that with adequate guidance from environmental regulations, green technological innovation activities will be more active and boost the overall production rate and levels of economic growth. After studying the above-mentioned literature concerning environmental regulatory strength and directed technological innovation to explore methods of how to achieve green growth, it can be observed that few academics are able to establish a quantitative model to explain these two important factors and the objective of green growth.…”