Research Seminar Environmental & Development Economics“Incentives for innovation in natural resource based industries“Mads Greaker (Statistics Norway)

16. Januar 2019

The Research Seminar Environmental & Development Economics welcomes Mads Greaker (Statistics Norway), who will present his work on

“Incentives for innovation in natural resource based industries”.

Place: Zentralbibliothek Recht, Rothenbaumchaussee 33 (Google Maps), Room Ro 33 BG 3/4
Hour: 12:15-13:45
We are looking forward to seeing you there!

Abstract
Sustainable yield from a natural resource fluctuates in response to both natural conditions and harvesting practices. On the one hand, research and development (R&D) may reduce the fluctuations through more knowledge of biological functioning. On the other hand, R&D may also increase the fluctuations if it results in more efficient harvesting gear with increased impact on the environment. We analyze the incentives for innovation in a natural resource based industry. The direction of technical change can either be towards profitability enhancing innovations or environmental hazard reducing innovations. Given that R&D can take two directions, we pose the following research questions: I) Is the market's ranking of profitability enhancing and environmental hazard reducing innovation projects in line with the ranking of the social planner? and II) How can the government obtain the first best level of innovation? We analyze these research questions within a theoretical model of innovation, and by applying a numerical example from the Norwegian salmon farming industry. The paper includes a number of results; first, when innovating for a natural resource based industry, there may exist a strategic effect which increases the incentives to do innovation along both directions. Second, our results suggest that the private incentives for profitability enhancing R&D outperform the private incentives for environmental hazard reducing R&D. In this case, public R&D policy should be directed towards the latter form of innovations.