Strategic use of environmental innovation in vertical chains and regulatory attitudes

Rania Mabrouk () and Oliwia Kurtyka ()
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Rania Mabrouk: GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes, UGA UFR FEG - Université Grenoble Alpes - Faculté d'Économie de Grenoble - UGA - Université Grenoble Alpes

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Abstract: We analyze firms' choice of abatement technology in vertical chains. A downstream polluting monopoly can buy a license from an upstream supplier with mature end-of-pipe equipment (outsider) or develop an in-house clean technology. Insiders innovation may be undertaken only to increase bargaining power of the polluter. We put the light on the strategic role of environmental regulation to influence this choice. We find that the role of regulator as a technology forcing authority is confirmed in regions of under-investment. However, under certain conditions, an over-investment occurs that forces the regulator to become laxer. Paradoxically, the regulator may oppose innovation even if the resulting technology is used by the innovator. All these results rely upon the creation of total profits from the integrated vertical structure.

Keywords: Environmental innovation; Abatement technology; Clean technology; End-of-pipe equipment; Vertical chain; Regulation; Bargaining (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-com, nep-cse, nep-env, nep-gth and nep-reg
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Working Paper: Strategic use of environmental innovation in vertical chains and regulatory attitudes (2020)
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