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Greener or cheaper goods: Economies of scope in R&D investments

Author

Listed:
  • Strandholm, John C.
  • Espinola-Arredondo, Ana
  • Munoz-Garcia, Felix

Abstract

This paper examines firms’ incentives to simultaneously invest in cost-reducing and in green R&D (abatement) under the presence of regulation. We show that, without regulation, firms only invest in cost-reducing R&D when economies of scope are absent, but invest in both types of R&D otherwise. With regulation, investments exhibit strategic complementarities, with and without economies of scope, leading to more investments in cost-reducing R&D, thus requiring more stringent emission fees. Assuming that firms invest in only one form of R&D, a traditional approach in the literature, gives rise to an undertaxation problem. This inefficiency is attenuated if R&D investments exhibit economies of scope, but emphasized if pollution is severe, and the market is concentrated; which is further increased when investment decisions are sequential.

Suggested Citation

  • Strandholm, John C. & Espinola-Arredondo, Ana & Munoz-Garcia, Felix, 2025. "Greener or cheaper goods: Economies of scope in R&D investments," Journal of Environmental Economics and Management, Elsevier, vol. 130(C).
    • Handle: RePEc:eee:jeeman:v:130:y:2025:i:c:s0095069624001815
    DOI: 10.1016/j.jeem.2024.103107
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    Keywords

    R&D; Emission fees; Abatement; Economies of scope;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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