Models in evolutionary economics and environmental policy: Towards an evolutionary environmental economics

Abstract

In this paper we review evolutionary economic modelling in relation to environmental policy. We discuss three areas in which evolutionary economic models have a particularly high added value for environmental policy-making: the double externality problem, technological transitions and consumer demand. We explore the possibilities to apply evolutionary economic models in environmental policy assessment, including the opportunities for making policy-making endogenous to environmental innovation. We end with a critical discussion of the challenges that remain.

Introduction

It is commonly argued that technological innovation will be an important key to decrease the impact of industrial society on the environment. The understanding of environmental innovation – that is, innovation that contributes to the sustainability of the natural environment – from an economic perspective is, however, still limited. Environmental economists working in the neoclassical tradition find it difficult to incorporate technological innovation, since the outcomes of inventive activity cannot be foreseen – not even in a probabilistic sense. Therefore, the treatment of environmental innovation as a maximization problem is of limited practical relevance [1]. Ecological economists may be better able to analyse environmental innovation because they work outside the maximization framework. Yet, hitherto they have been relatively silent on environmental innovation.

With neoclassical and ecological economics having failed to develop a systematic research programme on environmental innovation, evolutionary economics emerged as an alternative and promising framework [2]. In the last 15 years or so, we witness an increasing number of contributions in environmental economics adopting an evolutionary perspective, including conceptual frameworks [3], [4], [5], [6], [7], empirical studies [8], [9], [10], [11], [12] and policy-oriented discussions [13], [14], [15], [16]. More recently, scholars have started to develop formal evolutionary models in environmental studies, both explanatory and prospective [17], [18], [19], [20], [21], [22], [23], [24], [25], [26], [27], [28], [29], [30]. These efforts reflect a further deepening of the evolutionary programme in the area of environmental studies, which opens up possibilities for application in policy-making. The goal of this paper is to provide a systematic review of the recent efforts in evolutionary modelling in environmental studies, and to assess their implications for environmental policy-making.

We apply the following structure. We first briefly discuss evolutionary theory and its application to the study of the economy (Section 2). We go on to discuss three areas in which an evolutionary approach in environmental economics has a particularly high value-added for environmental policy-making: the double externality problem, technological transitions and consumer demand (Section 3). We then take up a ‘reflexive’ approach to the role of government in environmental innovation from an innovation systems approach, exploring opportunities for making policy-making endogenous to environmental innovation (Section 4). We end with a discussion of the methodological challenges that remain (Section 5).