|Title||Understanding innovation and impacts of regulation|
|Collaborators||Hadi Dowlatabadi (CMU), Dan Teitelbaum|
|Keywords||environmental regulation, technological innovation, R&D, emission controls, agent based models|
In neo-classical economics, it is assumed that all resources are efficiency employed in the productive activities maximizing welfare. Under such conditions, if a new constraint is introduced (say to limit environmental externalities of the productive activity) the adjustment to this new constraint has to be costly. If such adjustments can be made at a profit or at no cost, then the initial assumption of efficiency in resource use is violated.
In the real world, our understanding of innovation and how to shape it is rather limited. Furthermore, conjecture by folks like Porter and empirical evidence from studies by Morgenstern and others suggest that not all adjustments to productive activities (will be) or have been costly. Therefore, it is interesting to explore conditions under which we can seek to change a production practice without incurring significant costs.
In order to explore this question we have devised a simulation
environment in which firms compete for market dominance by investing
in R&D towards radical and incremental innovations and their
introduction to the market. We have explored:
We have only just scratched the surface of the problem using this new approach and plan to expand our research to include issues in human capital development in the near future.