Absorptive Capacity, R&D Spillovers, Emissions Taxes and R&D Subsidies
AbstractIn this paper, we consider a duopoly competing on quantity, where firms can invest in R&D to control their emissions. We distinguish between efforts carried out to acquire first-hand knowledge (inventive R&D) and efforts made to develop an absorptive capacity to be able to capture part of the knowledge developed by the rival. There are also free R&D spillovers between firms. To reach the first best outcome, the regulator uses three instruments, namely, a per-unit emissions tax, a per-unit inventive-research subsidy, and a per-unit absorptive-research subsidy. The socially optimal investment cost in inventive R&D is always higher than that in absorptive R&D. Interestingly, when the free spillover is high enough, the regulator gives a greater per-unit subsidy for inventive research, and when it is low enough and the marginal damage cost of pollution is sufficiently high, the regulator supports absorptive research to strengthen R&D spillovers. Moreover, inventive research is actually taxed when the free spillover is low and the marginal damage cost of pollution is high.
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Bibliographic InfoArticle provided by now publishers in its journal Strategic Behavior and the Environment.
Volume (Year): 4 (2014)
Issue (Month): 1 (April)
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Pollution control; inventive R&D; absorptive capacity; taxes and subsidies; first best;
Other versions of this item:
- Ben Youssef, Slim & Zaccour, Georges, 2009. "Absorptive Capacity, R&D Spillovers, Emissions Taxes and R&D Subsidies," MPRA Paper 16984, University Library of Munich, Germany, revised Aug 2009.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
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