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

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