Profiting From Regulation: The Effects of Emissions Standards on Abatement R&D

Johanna‐Sophia Hardt, Heidrun Hoppe‐Wewetzer and Felix B. Klapper

Journal of Public Economic Theory, 2025, vol. 27, issue 5

Abstract: This paper explores the impact of emissions standards on a firm's output and abatement R&D investment decisions in a duopoly model, extending the work of Amir et al. (2023). It is shown that high upper limits on total emissions remove the firms' incentives to invest in abatement R&D. This helps firms to coordinate on profit‐increasing output levels relative to unregulated markets. Moreover, subsidies for abatement R&D may hurt firms, but improve welfare when the regulation is strict enough.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:27:y:2025:i:5:n:e70055

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