Strategic Environmental R&D Cooperation Under Managerial Delegation Contracts: Sales Delegation Versus Environmental Delegation

This paper develops a duopoly model to examine firms' environmental R&D cooperation strategy under managerial delegation, where firms can choose between sales or environmental delegation. The results show that under sales delegation, firms choose non‐cooperative environmental R&D when the efficiency of environmental R&D is low; otherwise, cooperative environmental R&D occurs. Under environmental delegation, firms choose non‐cooperative environmental R&D when the degree of technology spillover is relatively high and the efficiency of environmental R&D is relatively low, whereas cooperative environmental R&D is optimal when the efficiency of environmental R&D is relatively high. We also find that regardless of the environmental R&D cooperation strategy, sales delegation leads to higher social welfare compared to environmental delegation. Moreover, we show that both symmetric and asymmetric sales (environmental) delegation can be an equilibrium in an endogenous delegation choice game, depending on the technology spillover effect and the efficiency of environmental R&D. Finally, we extend the model to examine the robustness of the baseline results.