Green Research Grants
No 2010-15, Working Papers from University of Hawaii Economic Research Organization, University of Hawaii at Manoa
Environmentally friendly technologies typically yield social returns far in excess of the private returns to the innovating firm. Governments issue grants to fund such projects in an attempt to increase their supply, but completion is uncertain and many projects never yield a successful innovation. This paper examines the case where each project has a probability of being feasible which is known to the firm, but unknown to a benevolent grant authroity. The grant authority therefore creates a menu of grants in such a way as to elicit truthful revelation of firms' types. More feasible projects indeed receive more funds than less feasible projects, but are expected to work much harder and finish faster.
Pages: 17 pages
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Persistent link: https://EconPapers.repec.org/RePEc:hae:wpaper:2010-15
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