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Does adoption always follow innovation?

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  • Kurtyka, Oliwia
  • Mabrouk, Rania

Abstract

The extent to which innovation is good news for environment depends not only on the research and development incentives but also on adoption stimulus. We analyze firm’s choice of abatement technology in vertical chains. A downstream polluting monopoly can sign a contract with an upstream supplier of mature end-of-pipe equipment or develop an in-house clean technology. We show that contracting plays a crucial role in the efficiency of environmental regulation in spurring adoption. We find that polluter’s innovation may be undertaken only to increase bargaining power and a share of industry profits he manages to capture. Consequently, polluter’s and regulator’s interests are not always aligned. The role of regulator as a technology forcing authority is partially confirmed in regions of under-investment. However, the regulator may not be able to trigger innovation and/or adoption if clean technology increases marginal costs too much. On the other hand, regulator may become laxer and oppose innovation in case of over-investment. All these results rely upon the creation of total profits from the integrated vertical structure and the partitioning rule.

Suggested Citation

  • Kurtyka, Oliwia & Mabrouk, Rania, 2025. "Does adoption always follow innovation?," Resource and Energy Economics, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:resene:v:83:y:2025:i:c:s0928765525000387
    DOI: 10.1016/j.reseneeco.2025.101514
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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