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Emission taxation, green innovations and inverted-U aggregate R&D efforts in a linear state oligopoly game

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  • D. Dragone
  • L. Lambertini
  • A. Palestini

Abstract

We revisit the well known differential Cournot game with polluting emissions dating back to Benchekroun and Long (1998), proposing a version of the model in which environmental taxation is levied on emissions rather than the environmental damage. This allows to attain strong time consistency under open-loop information, and yields two main results which can be summarized as follows: (i) to attain a fully green technology in steady state, the regulator may equivalently adopt an appropriate tax rate (for any given number of firms) or regulate market access (for any given tax rate); (ii) if the environmental damage depends on emissions only (i.e., not on industry output) then the aggregate green R&D effort takes an inverted-U shape, in accordance with Aghion et al. (2005), and the industry structure maximising aggregate green innovation also minimises individual and aggregate emissions.

Suggested Citation

  • D. Dragone & L. Lambertini & A. Palestini, 2017. "Emission taxation, green innovations and inverted-U aggregate R&D efforts in a linear state oligopoly game," Working Papers wp2000, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:wp2000
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • 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
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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