Policies on climate change that encourage 'clean innovation' while displacing 'dirty innovation' could have a positive impact on short-term economic growth while avoiding the potentially disastrous reduction in GDP that could result from climate change over the longer term.

We analyse the determinants of the decline in measured research productivity (the patent/R&D ratio) using panel data on manufacturing firms in the U.S. for the period 1980-93. We focus on three factors: the level of demand, the quality of patents, and technological exhaustion. We first develop...