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Absorptive Capacity, R&D Spillovers, Emissions Taxes and R&D Subsidies

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  • Ben Youssef, Slim
  • Zaccour, Georges

Abstract

In 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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File URL: http://dx.doi.org/10.1561/102.00000043
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Bibliographic Info

Article provided by now publishers in its journal Strategic Behavior and the Environment.

Volume (Year): 4 (2014)
Issue (Month): 1 (April)
Pages: 41-58

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Handle: RePEc:now:jnlsbe:102.00000043

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Related research

Keywords: Pollution control; inventive R&D; absorptive capacity; taxes and subsidies; first best;

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References

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  1. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 707-22, October.
  2. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
  3. Kort, P.M. & Farzin, Y.H., 2000. "Pollution abatement investment when environmental regulation is uncertain," Open Access publications from Tilburg University urn:nbn:nl:ui:12-84064, Tilburg University.
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  6. Leahy, Dermot & Neary, J. Peter, 2007. "Absorptive capacity, R&D spillovers, and public policy," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1089-1108, October.
  7. Grunfeld, Leo A., 2003. "Meet me halfway but don't rush: absorptive capacity and strategic R&D investment revisited," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1091-1109, October.
  8. Chrysovalantou Milliou, 2009. "Endogenous protection of R&D investments," Canadian Journal of Economics, Canadian Economics Association, vol. 42(1), pages 184-205, February.
  9. Slim Ben Youssef, 2003. "Transboundary Pollution, R&D Spillovers and International Trade," Working Papers 2003.39, Fondazione Eni Enrico Mattei.
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  12. Joanna Poyago-Theotoky, 1999. "A Note on Endogenous Spillovers in a Non-Tournament R & D Duopoly," Review of Industrial Organization, Springer, vol. 15(3), pages 253-262, November.
  13. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
  14. Cesare Dosi & Michele Moretto, 1997. "Pollution Accumulation and Firm Incentives to Accelerate Technological Change Under Uncertain Private Benefits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(3), pages 285-300, October.
  15. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
  16. d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP -823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Anna Hammerschmidt, 2006. "A strategic investment game with endogenous absorptive capacity," Department of Economics Working Papers wuwp092, Vienna University of Economics, Department of Economics.
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Citations

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Cited by:
  1. Ben Youssef, Slim & Dinar, Zeineb, 2009. "Régulation d'un duopole et R&D environnementale
    [Regulation of a duopoly and environmental R&D]
    ," MPRA Paper 22385, University Library of Munich, Germany, revised Apr 2010.
  2. Dinar, Zeineb, 2013. "Transboundary pollution, R&D spillovers, absorptive capacity and international trade," Economics Discussion Papers 2013-23, Kiel Institute for the World Economy.
  3. Ben Youssef, Slim, 2009. "Transboundary Pollution and Absorptive Capacity," MPRA Paper 17158, University Library of Munich, Germany.

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