How constant is constant elasticity of substitution? Endogenous substitution between clean and dirty energy
Open access
Date
2024-05Type
- Journal Article
Abstract
The degree of substitutability between clean and dirty energy plays a central role in leading economic analyses of optimal environmental policy. Despite the importance, assuming a constant and exogenous elasticity of substitution has been a dominant theoretical approach. We challenge this assumption by developing a dynamic general equilibrium model with an endogenous elasticity of substitution that interacts with the relative share of clean inputs in the economy. We find strong dynamic feedback effects arising from endogenous substitution capacity that amplifies the impact of directed technical change and accelerates the transition to a green economy. Show more
Permanent link
https://doi.org/10.3929/ethz-b-000671307Publication status
publishedExternal links
Journal / series
Journal of Environmental Economics and ManagementVolume
Pages / Article No.
Publisher
ElsevierSubject
Elasticity of substitution; Directed technical change; Climate changeOrganisational unit
02120 - Dep. Management, Technologie und Ökon. / Dep. of Management, Technology, and Ec.
Related publications and datasets
Is new version of: http://hdl.handle.net/20.500.11850/535198
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