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Environmental R&D in the Presence of an Eco-Industry

Listed author(s):
  • Alain-Désiré Nimubona

    (Department of Economics, University of Waterloo)

  • Hassan Benchekroun

    (Department of Economics, McGill University)

We compare the performance of R&D cooperation and R&D competition within the eco-industry using a model of vertical relationship between a polluting industry and the eco-industry. The polluting industry is assumed perfectly competitive and the eco-industry is a duopoly in the market for abatement goods and services, with one fi?rm acting as a Stackelberg leader and the other fi?rm as a follower. When there are full information sharing under R&D cooperation and involuntary information leakages under R&D competition, we ?find that the only case where government intervention is needed is the case where R&D cooperation yields a higher welfare but smaller pro?fits for the follower eco-industrial fi?rm than R&D competition. Furthermore, because of the market power that the eco-industry enjoys, we show that more total R&D efforts under R&D competition do not necessarily translate into more abatement activities and larger social welfare. When there are no involuntary leakages of information under R&D competition, this result occurs because R&D competition can induce more total R&D efforts than R&D cooperation even for signi?ficantly high R&D spillovers if the marginal environmental damage is large.

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Paper provided by University of Waterloo, Department of Economics in its series Working Papers with number 1406.

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Length: 41 pages
Date of creation: Sep 2014
Date of revision: Sep 2014
Handle: RePEc:wat:wpaper:1406
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