Endogenous technological change and pollution abatement

Abstract

Nonpoint source pollution control is a more complicated process than traditional analysis suggests. Whether a new pollution abatement technology is developed exogenously or endogenously and the per unit reduction in the rate at which a pollutant associated with the use of a factor of production needed to produce an agricultural commodity due to this technology enters the environment are critical factors in the determination of the effects of agricultural production on the pollutant stock. These are the issues addressed here. The optimal current period research and development expenditures on an endogenously induced abatement technology associated with the use of a factor of production giving rise to environmental externalities are shown to be a function of, among other things, the cumulation of all research and development expenditures, the probability of an abatement technology being developed, the level of use of the factor of production, the unit pollution tax on the factor, the rate of time preference (discount rate), the rate at which the pollutant associated with the factor enters the environment, the rate of discharge of the pollutant stock, and so forth. Finally, the analysis demonstrates that a reduction in pollution by the adoption of an abatement technology may lead to an increase in the pollutant stock as a result of endogenous technological change associated with the pollution abatement. When the rate of pollution reduction is greater than a threshold, however, the adoption of an endogenously determined abatement technology will unequivocally lead to a reduction in the pollutant stock.