We study a dynamic model with two competing durable goods; one dirty, the other clean. Due to network effects a consumer who adopts the dirty good today will increase the incentive future consumers have to adopt the dirty good. Thus, a consumer who chooses the dirty good, in a sense causes more...

Since governments can influence the demand for a new abatement technology through their environmental policy, they may be able to expropriate innovations in new abatement technology ex post. This suggests that incentives for environmental R&D may be lower than the incentives for market goods...

Climate mitigation policy should be imposed over a long period, and spur development of new technologies in order to make stabilization of green house gas concentrations economically feasible. The government may announce current and future policy packages that stimulate current R&D in...