The Economics of Technology Diffusion: Implications for Climate Policy in Developing Countries

Recent efforts to forge a consensus on the role developing countries should play in reducing global greenhouse gas emissions have focused attention on climate friendly technologies (CFTs), most notably those that enhance energy efficiency. In the medium term, the effectiveness of technology-based climate strategies will depend critically on the rates at which CFTs diffuse in developing countries. This paper reviews some of the key findings of the economics research on technology diffusion and assesses the implications for climate policy. The most obvious lessons from this research are that widespread diffusion of CFTs may take decades, and that diffusion rates in developing and industrialized countries are likely to be quite different. In addition, the literature has implications for a number of strategies for promoting technology diffusion including information dissemination, factor price rationalization, and investment in human capital.

Obstacles to a Doubly Green Revolution

Increasingly, conventional wisdom dictates that agrarian policy in developing countries should foster a "doubly green revolution" that both protects the environment and boosts output. Like the first green revolution, such a transformation will entail convincing millions of farmers to adopt new practices and, as a result, will confront well-documented barriers to technological change in developing-country agriculture. It will also face a number of new obstacles, including a divergence between the interests of policymakers and farmers, a policy environment biased in favor of input-intensive agriculture, and the fact that many environmentally friendly technologies entail relatively high set-up costs. At least in the short run, institutional constraints will limit the contribution of agricultural biotechnology to overcoming these obstacles. Hence, the first green revolution may serve as an overly optimistic model for a shift to a more sustainable agriculture.

Informal Sector Pollution Control: What Policy Options Do We Have?

In developing countries, urban clusters of informal firms such as brick kilns and leather tanneries can create severe pollution problems. However, these firms are quite difficult to regulate for a variety of technical and political reasons. Drawing on the literature, this paper first develops a list of feasible environmental management policies. It then examines how these policies have fared in four independent efforts to control emissions from informal brick kilns in northern Mexico. The case studies suggest that: (i) conventional command and control process standards are generally only enforceable when buttressed by peer monitoring, (ii) surprisingly, clean technologies can be successfully diffused even when they raise variable costs, in part because early adopters have an economic incentive to promote further adoption, (iii) boycotts of "dirty" goods sold in informal markets are unenforceable, (iv) well-organized informal firms can block implementation of costly abatement strategies such as relocation, and (v) private-sector-led initiatives may be best suited for informal sector pollution control.

Adoption of Clean Leather-Tanning Technologies in Mexico

In many developing countries, a host of financial, institutional, and political factors hamstring conventional environmental regulation. Given these constraints, a promising strategy for controlling pollution is to promote the voluntary adoption of clean technologies. Although this strategy has received considerable attention in policy circles, empirical research on the adoption of clean technologies in developing countries is limited. This paper presents historical background and original survey data on the adoption of five clean tanning technologies by a sample of 137 leather tanneries in León, Guanajuato, Mexico, a city where tanneries have serious environmental impacts and conventional environmental regulation has repeatedly failed to mitigate the problem. The analysis suggest that rather than top-down public-sector pressure and technical assistance, the key factor driving the adoption of clean tanning technologies in León is the bottom-up dissemination of information about the cost and quality benefits of the technologies.clean technology, leather tanning, developing country, Mexico

Why Don't Lenders Finance High-Return Technological Change in Developing-Country Agriculture?

Most of the literature attributes credit constraints in small-farm developing-country agriculture to the variability of returns to investment in this sector. But the literature does not fully explain lenders’ reluctance to finance investments in technologies that provide both higher average and less variable returns. To fill this gap, this article develops an information-theoretic credit market model with endogenous technology choice. The model demonstrates that lenders may refuse to finance any investment in a riskless high-return technology— regardless of the interest rate they are offered—when they are imperfectly informed about loan applicants’ time preferences and, therefore, about their propensities to default intentionally in order to finance current consumption.: agriculture, asymmetric information, credit, developing country, technology adoption.

Does Eco-Certification Boost Regulatory Compliance in Developing Countries? ISO 14001 in Mexico

Private sector initiatives certifying that producers of goods and services adhere to defined environmental process standards are increasingly popular worldwide. According to proponents, they can circumvent chronic barriers to effective public sector environmental regulation in developing countries. But eco-certification programs will have limited effects on producers’ environmental performance if, as one would expect, they select for those already meeting certification standards. Rigorous evaluations of the environmental effects of eco-certification in developing countries that control for selection bias are rare. We use plant-level data on more than 80,000 Mexican facilities to determine whether ISO 14001 series certification of environmental management systems boosts regulatory compliance. We use propensity score matching to control for nonrandom selection into the program. We find that plants recently fined by environmental regulators were more likely to be certified, all other things equal, but that certified plants were subsequently fined just as often as similar uncertified plants. These results suggest that in Mexico, the ISO 14001 program attracts dirty plants under pressure from regulators—not just relatively clean ones—but does not have a large, lasting impact on their regulatory compliance.voluntary environmental regulation, duration analysis, propensity score matching, Mexico

The Evidence Base for Environmental and Socioeconomic Impacts of “Sustainable” Certification

Initiatives certifying that farms and firms adhere to predefined environmental and social welfare production standards are increasingly popular. According to proponents, they create financial incentives for farms and firms to improve their environmental and socioeconomic performance. This paper reviews the evidence on whether sustainable certification of agricultural commodities and tourism operations actually has such benefits. It identifies empirical ex post farm-level studies of certification, classifies them on the basis of whether they use methods likely to generate credible results, summarizes their findings, and considers the implications for future research. We conclude that empirical evidence that sustainable certification has significant benefits is limited. We identify just 37 relevant studies, only 14 of which use methods likely to generate credible results. Of these 14 studies, only 6 find that certification has environmental or socioeconomic benefits. This evidence can be expanded by incorporating rigorous, independent evaluation into the design and implementation of projects promoting sustainable certification.sustainable, certification, eco-label, literature review

Tailored Regulation: Will Voluntary Site-Specific Performance Standards Necessarily Improve Welfare?

Increasingly popular tailored regulation (TR) initiatives like EPA’s Project XL allow plants to voluntarily substitute site-specific environmental performance standards for command-and-control regulations that dictate pollution abatement strategies. TR can significantly reduce participants’ costs of complying with environmental regulations. But in doing so, it can also provide participants with a competitive advantage. We show that this can have undesirable welfare consequences when it enables relatively inefficient firms in oligopolistic markets to "steal" market share from more efficient firms. One critical determinant of whether or not TR has such adverse welfare impacts is the regulator’s policy regarding the diffusion of TR agreements among non-participating firms.

Scrap Tires in Ciudad Juárez and El Paso: Ranking the Risks

According to conventional wisdom, rapidly growing stocks of scrap tires on the U.S.–Mexico border pose a variety of health and environmental risks. This article assesses these risks in Paso del Norte, the border’s second-largest metropolis comprised principally of Ciudad Juárez, Chihuahua, and El Paso, Texas. We find that air pollution from tire pile fires poses the greatest threat. Scrap tires in Paso del Norte do not contribute significantly to the propagation of mosquito-borne diseases or to shortages of space in solid waste disposal sites. The burning of scrap tires at industrial facilities is minimal and might not have significant adverse environmental impacts even if it were more common.Scrap tires, U.S.–Mexico border, environment, health, risk assessment

The Evidence Base for Environmental and Socioeconomic Impacts of “Sustainable” Certification

Initiatives certifying that farms and firms adhere to predefined environmental and social welfare production standards are increasingly popular. According to proponents, they create financial incentives for farms and firms to improve their environmental and socioeconomic performance. This paper reviews the evidence on whether sustainable certification of agricultural commodities and tourism operations actually has such benefits. It identifies empirical ex post farm-level studies of certification, classifies them on the basis of whether they use methods likely to generate credible results, summarizes their findings, and considers the implications for future research. We conclude that empirical evidence that sustainable certification has significant benefits is limited. We identify just 37 relevant studies, only 14 of which use methods likely to generate credible results. Of these 14 studies, only 6 find that certification has environmental or socioeconomic benefits. This evidence can be expanded by incorporating rigorous, independent evaluation into the design and implementation of projects promoting sustainable certification.sustainable, certification, eco-label, literature review