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Green Innovation and Competition: R&D Incentives in a Circular Economy

Author

Listed:
  • Giovanna Bimonte

    (Department of Economics and Statistics, University of Salerno, Via Giovanni Paolo II, 132, I-84084 Fisciano, Italy)

  • Maria Grazia Romano

    (Department of Economics and Statistics, University of Salerno, Via Giovanni Paolo II, 132, I-84084 Fisciano, Italy
    Department of Economics and Statistics and CSEF, University of Naples Federico II, Via Cintia, Monte S. Angelo, I-80126 Napoli, Italy)

  • Maria Russolillo

    (Department of Economics and Statistics, University of Salerno, Via Giovanni Paolo II, 132, I-84084 Fisciano, Italy
    Faculty of Actuarial Science and Insurance, Bayes Business School, City University, 106 Bunhill Row, London EC1Y 8TZ, UK)

Abstract

The present paper provides theoretical insights regarding the determinants of firms’ incentives to invest in a Circular Economy. The analysis relies on a Cournot model disaggregating the disposal cost in the production function. In a non-simultaneous sequential game, two risk-neutral firms are endowed with a green innovation project that, if successful, would reduce the overall production costs and implement a Circular Economy. Firms are plagued by asymmetric information about the exact value of the other firm’s innovation. In this setting, the R&D investment in a Circular Economy, by affecting the distribution of production and disposal costs, influences the production decisions of both the innovating and the rival firms. The sign of the impact depends on the firms’ strategy in the product market. Furthermore, the analysis points out that cooperation in R&D of firms competing in the product market reinforces incentives to invest in green innovation. This suggests that governments aimed to advance a Circular Economy should encourage firms’ cooperation.

Suggested Citation

  • Giovanna Bimonte & Maria Grazia Romano & Maria Russolillo, 2021. "Green Innovation and Competition: R&D Incentives in a Circular Economy," Games, MDPI, vol. 12(3), pages 1-14, September.
    • Handle: RePEc:gam:jgames:v:12:y:2021:i:3:p:68-:d:636545
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    References listed on IDEAS

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    Cited by:

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    3. Fazal Ur Rehman & Basheer M. Al-Ghazali & Mohamed Riyazi M. Farook, 2022. "Interplay in Circular Economy Innovation, Business Model Innovation, SDGs, and Government Incentives: A Comparative Analysis of Pakistani, Malaysian, and Chinese SMEs," Sustainability, MDPI, vol. 14(23), pages 1-31, November.
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