Enforcement of Intellectual Property, Pollution Abatement, and Directed Technical Change

We theoretically investigate the interaction between endogenous enforcement of intellectual property rights (IPRs) and tax-financed pollution abatement measures. IPRs affect dirty and clean intermediates alike such that higher IPR enforcement may promote the transition to the clean technology, if this technology is productive enough. If the green technology is relatively unproductive, higher IPRs promote the dirty technology while pollution is increasing. As households are due to subsistence consumption subject to a hierarchy of needs, the level of IPR enforcement as well as the level of abatement measures depends on the state of technology and is increasing during economic development. Thus, if the incentive to enforce IPRs is low the level of abatement measures is also low. This argument provides a theoretical foundation for the observed clash of interests in international negotiation rounds regarding the harmonization of IPR protection and actions to combat climate change.