Pollution Abatement with Disruptive R&D Investment

John Strandholm (), Ana Espinola-Arredondo and Felix Munoz-Garcia
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John Strandholm: Washington State University, https://jstrandholm.wordpress.com/

No 2018-8, Working Papers from School of Economic Sciences, Washington State University

Abstract: This paper examines a model of investment in abatement where firms are allowed to produce output while investing in R&D. The latter, however, increases production costs, thus disrupting first-period output. We identify three equilibrium profiles where firms choose to either: (1) invest in R&D alone (thus rationalizing a common modeling assumption in the literature); (2) produce output alone; or (3) engage in both activities. We evaluate how the emergence of each result is affected by the market structure in which firms compete and by the severity of spillover effects. We then measure welfare levels in each equilibrium profile. Overall, we show that firms endogenously choose to focus in R&D only when the market is concentrated and spillover effects are small. In other type of industries, our findings indicate that firms may focus on output production or engage in both activities under relatively large conditions.

Keywords: Abatement; Emission fees; R&D disruptive effects; Equilibrium profiles; Spillovers (search for similar items in EconPapers)
JEL-codes: H23 L12 O32 Q58 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018-12-18
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Related works:
Journal Article: Pollution abatement with disruptive R&D investment (2021)
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