The Incentive to Invest in Environmental-Friendly Technologies: Dynamics Makes a Difference

Davide Dragone, Luca Lambertini () and Arsen Palestini ()
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Arsen Palestini: Sapienza University of Rome

A chapter in Green Growth and Sustainable Development, 2013, pp 165-188 from Springer

Abstract: Abstract The established view on oligopolistic competition with environmental externalities has it that, since firms neglect the external effect, their incentive to invest in R&D for pollution abatement is nil unless they are subject to some form of environmental taxation. We take a dynamic approach to this issue, using a simple differential game to show that the conclusion reached by the static literature is not robust, as the introduction of dynamics shows that firms do invest in R&D for environmental-friendly technologies throughout the game, as long as R&D is accompanied by an output restriction exhibiting a distinctively collusive flavour. We also examine the social planning case and the effects of Pigouvian taxation, to show that there exists a feasible tax rate inducing profit-seeking firms to choose a combination of output and R&D such that the resulting social welfare level is the same as in the first best.

Keywords: Consumer Surplus; Static Game; Social Planning; Pollution Stock; Cournot Oligopoly (search for similar items in EconPapers)
Date: 2013
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Related works:
Working Paper: The Incentive to Invest in Environmental-Friendly Technologies: Dynamics Makes a Difference (2009)
Working Paper: The Incentive to Invest in Environmental-Friendly Technologies: Dynamics Makes a Difference (2009)
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DOI: 10.1007/978-3-642-34354-4_8

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