Regulation, free-riding incentives, and investment in R&D with spillovers

John C. Strandholm, Ana Espinola-Arredondo and Felix Munoz-Garcia

Resource and Energy Economics, 2018, vol. 53, issue C, 133-146

Abstract: In this paper, we analyze a duopoly market with investment in abatement technology under environmental regulation. We use a three-stage game where firms invest in a green technology with spillover effects in the first stage, the regulator sets the emission fee in the second stage, and production of the polluting good occurs in the third stage. We analyze two different regulatory regimes: (1) each firm faces the same emission fee (uniform fee), and (2) each firm faces an emission fee dependent on the investment in green technology (type-dependent fee). Firms can differ through their costs of investing in the abatement technology (asymmetric efficiency). We obtain that social welfare is unambiguously higher under the type-dependent regime than otherwise. In addition, we find that the asymmetry in efficiency of investment affects firms’ profits, identifying that efficient (inefficient) firms favor type-dependent (uniform) policy regimes.

Keywords: Research and Development; Uniform fee; Type-dependent fee; Spillover (search for similar items in EconPapers)
JEL-codes: H23 L12 O32 Q58 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Regulation, Free-Riding Incentives, and Investment in R&D with Spillovers (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:53:y:2018:i:c:p:133-146

DOI: 10.1016/j.reseneeco.2018.04.002

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