How constant is constant elasticity of substitution? Endogenous substitution between clean and dirty energy
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Date
2024-05
Publication Type
Journal Article
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yes
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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.
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published
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Volume
125
Pages / Article No.
102982
Publisher
Elsevier
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Subject
Elasticity of substitution; Directed technical change; Climate change
Organisational unit
09762 - Barrage, Lint / Barrage, Lint
02120 - Dep. Management, Technologie und Ökon. / Dep. of Management, Technology, and Ec.
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