Kyoto Project Mechanisms and Technology Di¤usion

This paper deals with the di¤usion of GHG mitigation technologies in developing countries. We develop a model to evaluate the ability of the Clean Development Mechanism (CDM) to yield the optimal di¤usion path. Two \u85rms can adopt a cleaner technology simultaneously or sequen-tially. Adoption entails a \u85xed cost which endogenously decreases with previous adoptions. This create two ine ¢ ciencies. The \u85rst is the standard positive exter-nality problem leading to the underprovision of technology adoption. The second is a coordination problem. Both \u85rms would prefer to follow in order to bene\u85t from a reduced adoption cost. But following requires that the other \u85rm takes the lead. We show that the CDM does not solve any of these two problems. We consider possible design improvements. Giving a premium to the \u85rst adopter solves the externality problem but not the coordination problem. By contrast, bundling the two projects into a single CDM project can yield the \u85rst best optimu