Regulatory Choice with Pollution and Innovation
AbstractThis paper develops a simple model of a polluting industry and an innovating firm. The polluting industry is faced with regulation and costly abatement. Regulation may be taxes or marketable permits. The innovating firm invests in R&D and develops technologies which reduce the cost of pollution abatement. The innovating firm can patent this innovation and use a licensing fee to generate revenue. In a world of certainty, the first best level of innovation and abatement can be supported by either a pollution tax or a marketable permit. However, the returns to the innovator from innovation are not the same under the two regimes. A marketable permit system allows the innovator to capture all of the gains to innovation; a tax system involves sharing the gains of innovation between the innovator and the polluting industry.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16303.
Date of creation: Aug 2010
Date of revision:
Publication status: published as Regulatory Choice with Pollution and Innovation , Charles D. Kolstad. in The Design and Implementation of U.S. Climate Policy , Fullerton and Wolfram. 2012
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Other versions of this item:
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-03 (All new papers)
- NEP-ENE-2010-09-03 (Energy Economics)
- NEP-ENV-2010-09-03 (Environmental Economics)
- NEP-INO-2010-09-03 (Innovation)
- NEP-REG-2010-09-03 (Regulation)
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