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Double Free-Riding in Innovation and Abatement: A Rules Treaty Solution

Author

Listed:
  • Hans Gersbach

    () (CER-ETH - Center of Economic Research at ETH Zurich and CEPR)

  • Quirin Oberpriller

    () (CER-ETH - Center of Economic Research at ETH Zurich)

  • Martin Scheffel

    () (CMR - Center for Macroeconomic Research at University of Cologne, Albertus-Magnus-Platz)

Abstract

In addressing climate change, both abatement itself and the innovation of superior abatement technologies are exposed to free-riding. To examine this double free-riding problem, we develop a multi-country model with an international market for emission permits and licenses for abatement technologies. We show that the two problems are mutually reinforcing. To address the double free-riding problem we propose a rules treaty for innovation and abatement that consists of two rules, an allocation rule and a refunding rule. The allocation rule determines the share of issued emission permits that each country can directly allocate to its domestic firms, while the remainder is handed over to an international agency. The refunding rule determines how the agency’s revenues from selling these permits to firms are redistributed. A fraction is given to those countries that successfully develop superior abatement technologies provided they license the technology free of charge to all countries. The remaining revenues are redistributed to all countries. These rules can approximate globally optimal abatement and innovation levels.

Suggested Citation

  • Hans Gersbach & Quirin Oberpriller & Martin Scheffel, 2019. "Double Free-Riding in Innovation and Abatement: A Rules Treaty Solution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(2), pages 449-483, June.
  • Handle: RePEc:kap:enreec:v:73:y:2019:i:2:d:10.1007_s10640-018-0270-8
    DOI: 10.1007/s10640-018-0270-8
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    More about this item

    Keywords

    Rules treaty; Climate change; Global refunding scheme; International permit markets; Technological innovation; Patent; Licensing;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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