Absorptive Capacity, R&D Spillovers, Emissions Taxes and R&D Subsidies

Slim Ben Youssef () and Georges Zaccour

MPRA Paper from University Library of Munich, Germany

Abstract: We consider in this paper a duopoly competing in quantities and where firms can invest in R&D to control their emissions. We distinguish between effort carried out to acquire first-hand knowledge (original R&D)and effort to develop an absorptive capacity to be able to capture part of the knowledge developed by rival. There are also free R&D spillovers between firms. We show that a regulator can reach the social optimal outcome by implementing a taxation and subsidy policy. The regulator subsidizes at a higher rate original R&D effort than its absorptive capacity counterpart when the free spillovers are high, and the contrary may occur when the free spillovers are low. When the cost of original research is lower than the one of absorptive research, or when the learning parameter of the latter is low, then the socially optimal level of original research is higher than the one of absorptive capacity. We have the opposite result when the cost of absorptive capacity is lower than the one of original research and when the learning parameter is high.

Keywords: Pollution Control; Original R&D; Absorptive Capacity; Taxes and Subsidies; Social Optimum (search for similar items in EconPapers)
JEL-codes: D62 H23 C72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-ino
Date: 2009-06, Revised 2009-08
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