Environmental Regulation and Technological Innovation with Spillovers
AbstractWe present a two-period dynamic model of standard setting under asymmetric information to model the attempts by the Califormia Air Resources Board (CARB) in getting car manufacturers to comply with its phase-in of stringent emissions standards. After CARB chooses an initial emissions standard that ?rms are required to comply with, automakers respond by choosing R&D investment and production levels which provide CARB an imperfect signal whether they are more or less capable of complying with the standard. CARB resets the environmental standard and the ?rms once again choose research and production levels. Firms are Cournot duopolists in the product market and can choose to do research noncooperatively or cooperatively in the presence of spillovers. We show that ?rms will behave strategically and underinvest in research both under competitive and cooperative R&D, though the level of underinvestment — the ratchet effect — is greater under cooperative R&D when spillovers are large. We uncover a fundamental con?ict between the incentives of ?rms to do cooperative research and social welfare: that ?rms will want to engage in cooperative (resp. noncooperative) R&D only when spillovers are low (resp. high) while social welfare is greater under noncooperative (resp. cooperative) research.
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Bibliographic InfoPaper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number 2004/16.
Date of creation: 2004
Date of revision:
Contact details of provider:
Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila.iseg.utl.pt/aquila/departamentos/EC
Car emissions; dynamic technology-forcing regulation; selfregulation; pre-commitment; cooperative R&D; ratchet effect.;
Find related papers by JEL classification:
- L5 - Industrial Organization - - Regulation and Industrial Policy
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-07 (All new papers)
- NEP-ENE-2005-05-07 (Energy Economics)
- NEP-ENV-2005-05-07 (Environmental Economics)
- NEP-INO-2005-05-07 (Innovation)
- NEP-MIC-2005-05-07 (Microeconomics)
- NEP-REG-2005-05-07 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
- Suzumura, Kotaro, 1992. "Cooperative and Noncooperative R&D in an Oligopoly with Spillovers," American Economic Review, American Economic Association, vol. 82(5), pages 1307-20, December.
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