Capacity investment and green R&D in a dynamic oligopoly under the potential shift in environmental damage

Jian Ni, Hongzhi Huang, Peipei Wang and Wei Zhou

Economic Modelling, 2020, vol. 88, issue C, 312-319

Abstract: We develop a differential oligopoly game to investigate firms’ capacity investment and green R&D efforts in the presence of the potential shift in environmental damage and under the spillover effect of R&D activities among firms. We find that when both the probability of potential shift in environmental damage and the efficacy of R&D activities are high, the spillover effect will discourage the R&D effort but encourage the capacity investment. Otherwise, the spillover effect will encourage the R&D effort but discourage the capacity investment. Moreover, the potential shift in environmental damage can significantly impact the capacity and green R&D decisions as well as the Pigouvian tax, especially in the case of a large number of firms, a high profitability of the product, a high level of interest rate, and a high level of R&D spillover among firms.

Keywords: Differential games; R&D; Spillover; Environmental externality; Regime shift; Capacity investment (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:88:y:2020:i:c:p:312-319

DOI: 10.1016/j.econmod.2019.09.044

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