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Non-Tradeable Pollution Permits as Green R&D Incentives

  • Mehdi Fadaee

    ()

    (Department of Economics, University of Bologna, Italy)

  • Luca Lambertini

    ()

    (Department of Economics, University of Bologna, Italy; ENCORE, University of Amsterdam, The Netherlands; The Rimini Centre for Economic Analysis, Italy)

Acquired wisdom has it that the allocation of pollution rights to firms hinders their willingness to undertake uncertain R&D projects for environmental-friendly technologies. We revisit this issue in a model where firms strategically choose whether to participate in a lottery to attain pollution permits, or instead invest in green R&D, to show that, somewhat counterintuitively, a desirable side effect of the pollution permit is in fact that of fostering environmental R&D in an admissible range of the model parameters.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 43_12.

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Date of creation: Jun 2012
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Handle: RePEc:rim:rimwps:43_12
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