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Emission taxation, green R&D, and managerial delegation contracts with environmental and sales incentives

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  • Chul‐Hi Park
  • Sang‐Ho Lee

Abstract

We extend the analysis of a managerial delegation model with green R&D by incorporating two explicit incentive‐based executive compensation contracts. In the combination of environmental and sales delegations, (i) the incentives are higher than those under a single incentive scheme, (ii) firms' output and abatement efforts are higher, and (iii) total emissions are lower, and (iv) a firm's profits are higher than that under a sales delegation. Therefore, an emission tax policy, along with firms' compensation packages related to environmental delegation, can play a key role in curving market failure and improving welfare.

Suggested Citation

  • Chul‐Hi Park & Sang‐Ho Lee, 2023. "Emission taxation, green R&D, and managerial delegation contracts with environmental and sales incentives," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2366-2377, June.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:4:p:2366-2377
    DOI: 10.1002/mde.3822
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    References listed on IDEAS

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    1. Kosuke Hirose & Sang-Ho Lee & Toshihiro Matsumura, 2020. "Noncooperative and Cooperative Environmental Corporate Social Responsibility," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 176(3), pages 549-571.
    2. Sang-Ho Lee & Timur K. Muminov, 2021. "Endogenous Timing of R&D Decisions and Privatization Policy with Research Spillovers," Journal of Industry, Competition and Trade, Springer, vol. 21(4), pages 505-525, December.
    3. Lee Sang-Ho & Park Chul-Hi, 2019. "Eco-Firms and the Sequential Adoption of Environmental Corporate Social Responsibility in the Managerial Delegation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-9, January.
    4. Jiaqi Chen & Sang‐Ho Lee & Timur K. Muminov, 2022. "R&D spillovers, output subsidies, and privatization in a mixed duopoly: Flexible versus irreversible R&D investments," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 879-899, July.
    5. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2021. "To abate, or not to abate? A strategic approach on green production in Cournot and Bertrand duopolies," Energy Economics, Elsevier, vol. 96(C).
    6. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    7. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    8. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
    9. Kosuke Hirose & Sang-ho Lee & Toshihiro Matsumura, 2017. "Environmental corporate social responsibility : A note on the first-mover advantage under price competition," Economics Bulletin, AccessEcon, vol. 37(1), pages 214-221.
    10. Sang-Ho Lee & Chul-Hi Park, 2021. "Corporate environmentalism in a managerial delegation and abatement subsidy policy," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 28(5), pages 546-561, September.
    11. Lili Xu & Sang‐Ho Lee, 2022. "Non‐cooperative and cooperative environmental corporate social responsibility with emission taxes," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 2849-2862, October.
    12. Xu, Lili & Chen, Yuyan & Lee, Sang-Ho, 2022. "Emission tax and strategic environmental corporate social responsibility in a Cournot–Bertrand comparison," Energy Economics, Elsevier, vol. 107(C).
    13. Leal, Mariel & Garcia, Arturo & Lee, Sang-Ho, 2018. "The Timing Of Environmental Tax Policy With A Consumer-Friendly Firm," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 59(1), pages 25-43, June.
    14. Fershtman, Chaim, 1985. "Managerial incentives as a strategic variable in duopolistic environment," International Journal of Industrial Organization, Elsevier, vol. 3(2), pages 245-253, June.
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    Cited by:

    1. Xu, Lili & Zhao, Qinghong & Chen, Yuyan & Lee, Sang-Ho, 2023. "Post privatization of high-speed rail with corporate social responsibility (CSR) in an international transportation market: Mandatory CSR versus voluntary CSR," Economics of Transportation, Elsevier, vol. 35(C).

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