The role of finance in environmental innovation diffusion: An evolutionary modeling approach

Abstract

The implementation of climate adaptation and mitigation policies depend on the development of green technologies whose diffusion is constrained by a number of barriers which prevent them to spread broadly and at a fast pace. By means of an agent-based computational model, the paper investigates the macro and micro economic dynamics considering the role of a “traditional” commercial bank and a state investment bank that explicitly supports green investments. Simulation results emphasize that green finance matter and that the market diffusion of environmental innovation is more pronounced when the presence of the public investment bank is combined with strong consumers’ preferences oriented towards environmental quality. The relevance of the paper is twofold. Besides contributing to the literature on the finance-innovation nexus by considering the role of climate finance within a complex systems framework, it provides a model that can be used as a tool to explore policies to foster environmental innovation diffusion.