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Managerial Delegation Contracts, “Green” R&D and Emissions Taxation

Joanna Poyago-Theotoky and Yong Soo Keong ()
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Yong Soo Keong: Xi'an Jiaotong-Liverpool University, International Business School Suzhou, Business Building, South Campus, 8 Chongwen Road, Suzhou Dushu Lake Science and Education Innovation District, Suzhou Industrial ParkSuzhou, China

The B.E. Journal of Theoretical Economics, 2019, vol. 19, issue 2, 10

Abstract: We introduce an explicit environmental incentive into a managerial compensation contract in the context of a Cournot duopoly with pollution externalities under an emissions tax regime. We show that, depending on the effectiveness of “green” R&D, compared to a standard sales compensation contract, the explicit environmental focused contract results in more abatement. As a consequence, the regulator sets a lower emissions tax, and social welfare is higher. Moreover, in general, firm owners earn higher profits when adopting the environmental delegation contract.

Keywords: “green” R&D; abatement; emissions tax; managerial delegation; cournot duopoly (search for similar items in EconPapers)
JEL-codes: H23 L1 M5 Q58 (search for similar items in EconPapers)
Date: 2019
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