Green Innovation and Industrial Organization: A Guided Tour

Ana Espinola-Arredondo, Felix Munoz-Garcia and Joanna Poyago-Theotoky

Chapter 1 in Green Innovation and Industrial Organization, 2026, pp 1-33 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We examine the literature on firms’ incentives to invest in abatement, also known as green R&D, and how these incentives are affected by environmental regulation. We identify two externalities: the tax-saving and the emission-reduction externality. The analysis highlights how the timing of regulation affects firms’ investment decisions, particularly the formation of Environmental Research Cartels (ERCs), as well as the role of spillover effects. We then investigate other extensions in this literature, such as considering that firms sequentially invest in abatement, that firms have asymmetric investment costs, alternative spillover effects, disruptive investments, and endogenous entry.

Keywords: Green Innovation; Industrial Organization; R&D Smoothing; Emissions Tax; Porter Hypothesis; Corporate Social Responsibility; Public Eco-Firm; Foreign Direct Investment (FDI); Environmental Taxes; Voluntary Agreements; Mandatory Regulation; Green Consumers; Green R&D Organization; Environmental Regulation; Sustainable Development (search for similar items in EconPapers)
JEL-codes: F18 L16 L51 Q5 Q55 (search for similar items in EconPapers)
Date: 2026
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