Green technology adoption under uncertainty, increasing returns, and complex adaptive dynamics

We consider firms’ choices between a clean technology that benefits, and a dirty tech-
nology that harms, the environment. Green firms are more suited to the clean technology
and brown firms are more suited to the dirty technology. We use a model derived from com-
plexity theory that takes account of true uncertainty and increasing returns to technology
adoption. We examine theoretically, the properties of the long-run equilibrium, and provide
simulated time paths of technology adoption, using plausible dynamics. The long-run out-
come is an ‘emergent property’ of the system, and is unpredictable despite there being no
external technological or preference shocks. We describe the role of taxes and subsidies in
facilitating adoption of the clean technology; the conflict between optimal Pigouvian taxes
and adoption of clean technologies; the optimal temporal profile of subsidies; and the desir-
ability of an international fund to provide technology assistance to poorer countries.