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

  • Ben Youssef, Slim
  • Zaccour, Georges

We consider in this paper a duopoly competing in quantities and where�firms can invest in R&D to control their emissions. We distinguish between effort carried out to acquire first-hand knowledge (original R&D)and effort to develop an absorptive capacity to be able to capture part of the knowledge developed by rival. There are also free R&D spillovers between firms. We show that a regulator can reach the social optimal outcome by implementing a taxation and subsidy policy. The regulator subsidizes at a higher rate original R&D effort than its absorptive capacity counterpart when the free spillovers are high, and the contrary may occur when the free spillovers are low. When the cost of original research is lower than the one of absorptive research, or when the learning parameter of the latter is low, then the socially optimal level of original research is higher than the one of absorptive capacity. We have the opposite result when the cost of absorptive capacity is lower than the one of original research and when the learning parameter is high.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16984.

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Date of creation: Jun 2009
Date of revision: Aug 2009
Handle: RePEc:pra:mprapa:16984
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  1. Joanna Poyago-Theotoky, 1999. "A Note on Endogenous Spillovers in a Non-Tournament R & D Duopoly," Review of Industrial Organization, Springer, vol. 15(3), pages 253-262, November.
  2. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
  3. Grunfeld, Leo A., 2003. "Meet me halfway but don't rush: absorptive capacity and strategic R&D investment revisited," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1091-1109, October.
  4. Dermot Leahy & J Peter Neary, 2004. "Absorptive Capacity, R&D Spillovers, and Public Policy," Working Papers 200418, School Of Economics, University College Dublin.
  5. Chrysovalantou Milliou, 2006. "Endogenous Protection Of R&D Investments," Economics Working Papers we066325, Universidad Carlos III, Departamento de Economía.
  6. Stranlund, John K., 1997. "Public Technological Aid to Support Compliance to Environmental Standards," Journal of Environmental Economics and Management, Elsevier, vol. 34(3), pages 228-239, November.
  7. repec:ner:tilbur:urn:nbn:nl:ui:12-84064 is not listed on IDEAS
  8. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
  9. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
  10. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 707-22, October.
  11. Fischer, Carolyn & Newell, Richard, 2004. "Environmental and Technology Policies for Climate Mitigation," Discussion Papers dp-04-05, Resources For the Future.
  12. Anna Hammerschmidt, 2006. "A strategic investment game with endogenous absorptive capacity," Department of Economics Working Papers wuwp092, Vienna University of Economics and Business, Department of Economics.
  13. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February.
  14. Farzin, Y H & Kort, P M, 2000. " Pollution Abatement Investment When Environmental Regulation Is Uncertain," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(2), pages 183-212.
  15. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
  16. Slim Ben Youssef, 2003. "Transboundary Pollution, R&D Spillovers and International Trade," Working Papers 2003.39, Fondazione Eni Enrico Mattei.
  17. Cesare Dosi & Michele Moretto, 1997. "Pollution Accumulation and Firm Incentives to Accelerate Technological Change Under Uncertain Private Benefits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(3), pages 285-300, October.
  18. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
  19. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
  20. Kamien, Morton I. & Zang, Israel, 2000. "Meet me halfway: research joint ventures and absorptive capacity," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 995-1012, October.
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