ABSTRACT
Economic theory supports the argument for the nexus between sustainability and technology policies; not only is there a market failure that brings about negative environmental externalities, but also there is a market failure that brings about a social underinvestment in sustainability technologies. Inefficiencies in the market for sustainability technologies can lead to uncertainty about the market for innovative activity directed toward environmental technologies. Concomitantly, inefficiencies in the market for innovative activity reduce the incentives for firms to invest in environmental technologies that could mitigate inefficiencies in the market for sustainability. As Jaffe and Newell (2005, 166) summarize: ‘[This dual-market] problem compounds, because independent of the externality associated with pollution, innovation and diffusion are both characterized by externalities as well as other market failures’.
