Common ownership and the choice between green R&D subsidies and emissions taxes

This paper examines how common ownership influences the choice between emissions taxes and green R&D subsidies in a Cournot duopoly with endogenous abatement. Using a game-theoretic model, we show that while common ownership consistently reduces emissions, but its welfare implications depend on abatement costs and R&D spillovers: welfare rises when both are high and declines when they are low. The optimal policy depends jointly on three parameters: abatement cost, common ownership, and R&D spillovers. Subsidies dominate when abatement is cheap; taxes are better when abatement is expensive. For intermediate costs, the optimal policy hinges on the extent of common ownership: when ownership is low, taxes perform better; when ownership is high, subsidies lead to higher welfare. R&D spillovers expand the range where subsidies are optimal by strengthening firms’ innovation incentives. These findings highlight the need to align environmental regulation with evolving market structures, particularly in industries with growing institutional cross-ownership, and offer practical guidance for designing effective climate policy. The results obtained are robust under constant marginal production cost.