Environmental Policy and Endogenous Technical Change: A Theoretical & Empirical Analysis

EPA Grant Number: R826610
Title: Environmental Policy and Endogenous Technical Change: A Theoretical & Empirical Analysis
Investigators: Opaluch, James J. , Grigalunas, Thomas A. , Jin, Di
Institution: University of Rhode Island , Woods Hole Oceanographic Institution
EPA Project Officer: Chung, Serena
Project Period: October 1, 1998 through September 30, 2001
Project Amount: $325,000
RFA: Decision-Making and Valuation for Environmental Policy (1998) RFA Text |  Recipients Lists
Research Category: Environmental Justice


This project will develop a deeper understanding of relationship between productivity change and environmental policy that considers environmental inputs into the production process. A case study of OCS oil will be used to measure productivity change, accounting for environmental inputs. The study will compare engineering estimates of the costs of complying with environmental regulations to ex post performance, that includes innovative firm responses, like process change. The study will also estimate potential cost savings of policies that increase flexibility and encourage innovation.


Technical innovation will be modeled as a random process, where the likelihood of new discovery depends upon the level of research and development activities. The model will be linked to various types of environmental regulations to determine their implications for productivity growth, and the resulting costs of protecting environmental quality.

A detailed case study of the offshore oil industry will be carried out as an application of the framework. First, a detailed historical analysis of offshore oil will be developed to provide a time line for technical and environmental performance of the industry. Next, a model will be estimated and hypotheses regarding technical innovation will be tested. Estimates of productivity change will be decomposed to identify the significance of specific technical advances and more subtle changes in production processes. These estimates will be used to specify key parameters for alternative scenarios regarding the future of technical change in the offshore oil industry.

The estimated model will be used to simulate various alternative scenarios regarding production activities, productivity, and alternative environmental policies. Various policy questions will be examined, such as identifying potential cost savings that result from innovative pollution control measures, and the associated benefits that can be derived from flexible approaches that encourage innovation, including market based approaches for pollution control. Given the inherent uncertainties involved, the emphasis will be on developing a reasonable.

Expected Results:

Improved understanding of the role of environmental policy in productivity changes that will lead to improvements in decision making and the design of environmental regulations. A detailed case study provides a quantitative assessment of potential cost savings that indicates the significance of potential benefits of environmental policy that encourages innovation.

Publications and Presentations:

Publications have been submitted on this project: View all 8 publications for this project

Supplemental Keywords:

Economics, technology, technical change, petroleum, SIC code 1300, OCS oil, endogenous technical change., RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, Economics, decision-making, Engineering, Economics & Decision Making, ecosystem valuation, technical innovation, economic benefits, endogenous technical change, decision making, offshore oil, economic incentives, cost benefit, empirical analysis, environmental policy, theoretical analysis, compliance costs, innovative pollution control, benefits assessment

Progress and Final Reports:

  • 1999 Progress Report
  • 2000 Progress Report
  • Final Report