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Absorptive Capacity, R&D Spillovers, Emissions Taxes and R&D Subsidies

  • Ben Youssef, Slim
  • Zaccour, Georges

In this paper, we consider a duopoly competing on quantity, where firms can invest in R&D to control their emissions. We distinguish between efforts carried out to acquire first-hand knowledge (inventive R&D) and efforts made to develop an absorptive capacity to be able to capture part of the knowledge developed by the rival. There are also free R&D spillovers between firms. To reach the first best outcome, the regulator uses three instruments, namely, a per-unit emissions tax, a per-unit inventive-research subsidy, and a per-unit absorptive-research subsidy. The socially optimal investment cost in inventive R&D is always higher than that in absorptive R&D. Interestingly, when the free spillover is high enough, the regulator gives a greater per-unit subsidy for inventive research, and when it is low enough and the marginal damage cost of pollution is sufficiently high, the regulator supports absorptive research to strengthen R&D spillovers. Moreover, inventive research is actually taxed when the free spillover is low and the marginal damage cost of pollution is high.

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File URL: http://dx.doi.org/10.1561/102.00000043
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Article provided by now publishers in its journal Strategic Behavior and the Environment.

Volume (Year): 4 (2014)
Issue (Month): 1 (April)
Pages: 41-58

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Handle: RePEc:now:jnlsbe:102.00000043
Contact details of provider: Web page: http://www.nowpublishers.com/

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