Description:
The importance of coordination problems in the greening of the economy is analyzed using a global game approach in a simple macro-dynamic model. Two policy options to motivate firms to adopt green technology are examined: one coupling an emissions tax with subsidies, the other coupling an emissions tax with technology standards. Compared to the First-Best, these policies face coordination problems and their effectiveness depends on shocks affecting network externalities. The resulting path of the economy is stochastic and can deviate significantly from its benchmark. The underlying mechanisms are derived in a simple framework and illustrated by numerical simulations