Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion

We develop a framework for comparing empirically the effects of alternative environmental policy instruments on the diffusion of new technology. "Market-based" and "command-and-control" approaches can he quantitatively compared by estimating the economic penalty that firms, through their actions, reveal to be associated with violation of standards. In the context of concerns about global climate change, we empirically examine the likely effects of Pigouvian taxes, technology adoption subsidies, and technology standards. We employ state-level data on the diffusion of thermal insulation in new home construction, comparing the effects of energy prices, insulation cost, and building codes.