5.3.6.2 Achievement of Socioeconomic Potential
Vested Interests
Organizations provide not only public goods to their members but also selective
incentives, i.e., private goods. These selective incentives may be sufficient
to maintain the organization even if the public good it once provided is no
longer needed. Organizations that represent a narrow segment of society do not
have an incentive to increase society’s output, but rather to increase
the share of output going to its members. These organizations are themselves
barriers by being rent-seeking coalitions which reduce efficiency and output,
and increase the political divisiveness of society. Rent-seeking coalitions
interfere with an economy’s capacity to change because of their slow decision-making
processes, and because they increase the complexity of regulation and the role
of government (Olson, 1982).
A major barrier to the diffusion of technical progress appears to lie in the
existence of vested interests among economic agents specialized in the old technologies
and who may, therefore, be tempted to collude and exert political pressure on
governments to impose administrative procedures, taxes, trade barriers, and
regulations in order to delay or even prevent the arrival of new innovations
that might destroy their rents (Olson, 1982). The duration of the delay will
depend in part on the design of political institutions and in part on technological
characteristics (learning by doing and knowledge externalities), and on the
balance of power between innovators and incumbents. The more learning by doing
and the more positive knowledge externalities on the older technology, other
things being equal, the lower the frequency of new innovations (Jovanovic and
Nyarko, 1994; Krusell and Rios-Rull, 1996; Aghion and Howitt, 1998).
Firms’ Institutional Structures
Firms’ institutional structures shape their responses to technological
opportunities and policies. Firms that tend to maximize stability and tend to
rely on single–source internal analyses for information are the least likely
to be first adopters of a new technology. On the other hand, firms that maximize
profitability, and rely on multiple internal and external sources of information
were most likely to experiment with a variety of technologies, but unlikely
to commit themselves to a single fuel or process (Braid et al., 1986; O’Riordan
et al., 1998). A vertically integrated firm may be slower to absorb information
and respond to change than a firm where lateral transfers are possible (“smart
workplaces”). An integrated firm also has less incentive to innovate than
a decentralized one (“Arrow replacement effect”). On the other hand,
as a lot of climate change innovation research is of an applied nature, research
is more productive when it is carried out by the firm itself than when delegated
to a research institution. Delegation of the research function to a specific
entity within the firm increases the incentive to acquire information, but also
increases the probability of getting a suboptimal innovation (Aghion and Howitt,
1998; DeCanio, 1998).
Inadequate Attention to Institutional Design
This lack of attention, for example, is especially connected to the institutional
context (“national innovation system”) for the heuristic search which
gives rise to a set of new findings, blueprints, artifacts (“selection
environment”), and which may yield a protected space (“niche”)
in which a new product can survive more easily because of technology forcing.
A national innovation system provides long-term goals, predictions of long–run
outcomes, creation of an actors’ network, adequate experimentation, and
monitoring of outcomes, formulation of standards, tax and subsidies, etc. for
alternative energy technologies (Freeman and Soete, 1997; Rip and Kemp, 1998).
National policy styles, as routinized institutional methods to deal with issues,
in which the balance of authority is shifted from formal institutions toward
informal networks and associations may help achieve economic potential. This
shift favours the development of innovative policy formulation, and implementation
(Wynne, 1993; O’Riordan et al., 1998).
Lack of Effective Regulatory Agencies
Many developing countries have excellent constitutional and legal provisions
for environmental protection but the latter are not enforced (O’Riordan
et al., 1998). However, “informal regulation” under community pressure
from e.g., non-governmental organizations, trade unions, neighbourhood organizations,
etc. may substitute for formal regulatory pressure (Pargal and Wheeler, 1996).
Informal regulation is correlated with the adoption of clean technologies (Blackman
and Bannister, 1998). Differences in regulatory costs between the old and the
new technologies affect the rate of return on the new technology and the speed
of diffusion of technologies (Millman and Prince, 1989; Ecchia and Mariotti,
1994).
Reliance on Market Mechanisms when Inappropriate
Organizations co-ordinate behaviour by promulgating standards and rules, and
by offering certification that allows actors to formulate stable expectations
about the environment and about the behaviour of other actors. Markets perform
such functions incompletely or not at all. Thus, reliance on market mechanisms,
to the exclusion of the development of organizations needed to perform standard-setting
and other co-ordination functions limits the spread of new technology by increasing
uncertainty and preventing the realization of co-ordination benefits.
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