ABSTRACT
Economic and policy discussions have become increasingly permeated by issues related to technological change, particularly in the environmental arena. Policy interventions create constraints and incentives that influence the process of technological change, and these induced effects of policy on technology may have substantial implications for positive analysis of the impact of alternative policies, as well as the normative analysis of policy decisions. Under the individual standard, low-cost sellers could save cost area A by adopting the new technology, while they could gain areas A + B under a permit market policy. Sellers’ incentives to adopt are therefore higher under the permit system because they can undertake additional reductions and get profit area B by selling permits. Lead was added to gasoline for many decades to raise octane levels cheaply. Econometric modeling of technology adoption decisions lends itself naturally to the use of statistical techniques developed for analysis of duration data.
