IDEAS home Printed from https://ideas.repec.org/a/eee/resene/v53y2018icp133-146.html
   My bibliography  Save this article

Regulation, free-riding incentives, and investment in R&D with spillovers

Author

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

Abstract

In this paper, we analyze a duopoly market with investment in abatement technology under environmental regulation. We use a three-stage game where firms invest in a green technology with spillover effects in the first stage, the regulator sets the emission fee in the second stage, and production of the polluting good occurs in the third stage. We analyze two different regulatory regimes: (1) each firm faces the same emission fee (uniform fee), and (2) each firm faces an emission fee dependent on the investment in green technology (type-dependent fee). Firms can differ through their costs of investing in the abatement technology (asymmetric efficiency). We obtain that social welfare is unambiguously higher under the type-dependent regime than otherwise. In addition, we find that the asymmetry in efficiency of investment affects firms’ profits, identifying that efficient (inefficient) firms favor type-dependent (uniform) policy regimes.

Suggested Citation

  • Strandholm, John C. & Espínola-Arredondo, Ana & Munoz-Garcia, Felix, 2018. "Regulation, free-riding incentives, and investment in R&D with spillovers," Resource and Energy Economics, Elsevier, vol. 53(C), pages 133-146.
    • Handle: RePEc:eee:resene:v:53:y:2018:i:c:p:133-146
    DOI: 10.1016/j.reseneeco.2018.04.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0928765517303305
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.reseneeco.2018.04.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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 1133-1137, December.
    2. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    3. Poyago-Theotoky, J.A., 2007. "The organization of R&D and environmental policy," Journal of Economic Behavior & Organization, Elsevier, vol. 62(1), pages 63-75, January.
    4. Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 577-598.
    5. Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July.
    6. Anna Stepanova & Antonio Tesoriere, 2011. "R&D With Spillovers: Monopoly Versus Noncooperative And Cooperative Duopoly," Manchester School, University of Manchester, vol. 79(1), pages 125-144, January.
    7. Biglaiser, Gary & Horowitz, John K, 1995. "Pollution Regulation and Incentives for Pollution-Control Research," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(4), pages 663-684, Winter.
    8. Damania, D., 1996. "Pollution Taxes and Pollution Abatement in an Oligopoly Supergame," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 323-336, May.
    9. Juan-Pablo Montero, 2002. "Market Structure and Environmental Innovation," Journal of Applied Economics, Universidad del CEMA, vol. 5, pages 293-325, November.
    10. Tietenberg, Thomas H, 1974. "On Taxation and the Control of Externalities: Comment," American Economic Review, American Economic Association, vol. 64(3), pages 462-466, June.
    11. Henderson, J. V., 1977. "Externalities in a spatial context : The case of air pollution," Journal of Public Economics, Elsevier, vol. 7(1), pages 89-110, February.
    12. Diego Comin, 2004. "R&D: A Small Contribution to Productivity Growth," Journal of Economic Growth, Springer, vol. 9(4), pages 391-421, December.
    13. Juan-Pablo Montero, 2002. "Market Structure and Environmental Innovation," Journal of Applied Economics, Taylor & Francis Journals, vol. 5(2), pages 293-325, November.
    14. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-1306, December.
    15. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
    16. Amir, Rabah, 2000. "Modelling imperfectly appropriable R&D via spillovers," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1013-1032, October.
    17. Akhundjanov, Sherzod B. & Munoz-Garcia, Felix, 2016. "Firm Preferences for Environmental Policy: Industry Uniform or Firm Specific?," Strategic Behavior and the Environment, now publishers, vol. 6(1-2), pages 135-180, December.
    18. Audretsch, David B & Feldman, Maryann P, 1996. "R&D Spillovers and the Geography of Innovation and Production," American Economic Review, American Economic Association, vol. 86(3), pages 630-640, June.
    19. Antonio Tesoriere, 2015. "Competing R&D joint ventures in Cournot oligopoly with spillovers," Journal of Economics, Springer, vol. 115(3), pages 231-256, July.
    20. Hsiao-Lan Liu & Hsin-Yi Lin & Shin-Kun Peng, 2010. "The spillover effects of R&D on manufacturing industry in Taiwan’s metropolitan areas," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 45(3), pages 519-546, December.
    21. Almeida, Paul & Kogut, Bruce, 1997. "The Exploration of Technological Diversity and the Geographic Localization of Innovation," Small Business Economics, Springer, vol. 9(1), pages 21-31, February.
    22. Hochman, Oded & Ofek, Haim, 1979. "A theory of the behavior of municipal governments: The case of internalizing pollution externalities," Journal of Urban Economics, Elsevier, vol. 6(4), pages 416-431, October.
    23. Eithan Hochman & David Pines & David Zilberman, 1977. "The Effects of Pollution Taxation on the Pattern of Resource Allocation: The Downstream Diffusion Case," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 91(4), pages 625-638.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Strandholm John C. & Espínola-Arredondo Ana, 2020. "Investment in Green Technology and Entry Deterrence," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(2), pages 1-18, April.
    2. John C. Strandholm, 2020. "Promotion of Green Technology under Different Environmental Policies," Games, MDPI, vol. 11(3), pages 1-23, August.
    3. Nemet, Gregory F. & Lu, Jiaqi & Rai, Varun & Rao, Rohan, 2020. "Knowledge spillovers between PV installers can reduce the cost of installing solar PV," Energy Policy, Elsevier, vol. 144(C).
    4. Yanhong Liu & Xinjian Huang & Weiliang Chen, 2019. "The Dynamic Effect of High-Tech Industries’ R&D Investment on Energy Consumption," Sustainability, MDPI, vol. 11(15), pages 1-23, July.
    5. Niu, Wenju & Shen, Houcai, 2022. "Investment in process innovation in supply chains with knowledge spillovers under innovation uncertainty," European Journal of Operational Research, Elsevier, vol. 302(3), pages 1128-1141.
    6. Xia, Jing & Niu, Wenju & Chen, Xiaolin & Zhang, Lianmin, 2023. "Investing in a shared supplier to encourage environmental responsibility under spillovers and demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 174(C).
    7. Fukuda, Katsufumi & Ouchida, Yasunori, 2020. "Corporate social responsibility (CSR) and the environment: Does CSR increase emissions?," Energy Economics, Elsevier, vol. 92(C).
    8. Strandholm, John C. & Espinola-Arredondo, Ana & Munoz-Garcia, Felix, 2021. "Pollution abatement with disruptive R&D investment," Resource and Energy Economics, Elsevier, vol. 66(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Helm Carsten & Schöttner Anja, 2008. "Subsidizing Technological Innovations in the Presence of R&D Spillovers," German Economic Review, De Gruyter, vol. 9(3), pages 339-353, August.
    2. MAULEON, Ana & SEMPERE-MONERRIS, José & VANNETELBOSCH, Vincent J., 2004. "R&D networks among unionized firms," LIDAM Discussion Papers CORE 2004071, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Jianqiao LIU & Gamal ATALLAH, 2009. "Tradable Permits Under Environmental and Cost-reducing R&D," EcoMod2009 21500059, EcoMod.
    4. Strandholm, John C. & Espinola-Arredondo, Ana & Munoz-Garcia, Felix, 2021. "Pollution abatement with disruptive R&D investment," Resource and Energy Economics, Elsevier, vol. 66(C).
    5. Iritié, B. G. Jean-Jacques, 2014. "Enjeux des politiques industrielles basées sur les clusters d'innovation: cas des pôles de compétitivité [Issues of Innovative Clusters-based Industrial Policy: Case of Pole of Competitiveness]," MPRA Paper 54429, University Library of Munich, Germany.
    6. Naoto Aoyama & Emilson Caputo Delfino Silva, 2022. "Endogenous Abatement Technology Agreements under Environmental Regulation," Games, MDPI, vol. 13(2), pages 1-30, April.
    7. STUART McDONALD & JOANNA POYAGO-THEOTOKY, 2017. "Green Technology and Optimal Emissions Taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(2), pages 362-376, April.
    8. Van Long, N. & Soubeyran, A., 1996. "R&D Spillovers and Location Choice Under Cournot Rivalry," G.R.E.Q.A.M. 96a35, Universite Aix-Marseille III.
    9. Dragone, Davide & Lambertini, Luca & Palestini, Arsen, 2022. "Emission taxation, green innovations and inverted-U aggregate R&D efforts in a linear state differential game," Research in Economics, Elsevier, vol. 76(1), pages 62-68.
    10. Requate, Till, 2005. "Dynamic incentives by environmental policy instruments--a survey," Ecological Economics, Elsevier, vol. 54(2-3), pages 175-195, August.
    11. Montero, Juan-Pablo, 2002. "Market Structure and Environmental Innovation," Journal of Applied Economics, Universidad del CEMA, vol. 5(2), pages 1-33, November.
    12. Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2023. "Optimal R&D disclosure in network industries," Economic Systems, Elsevier, vol. 47(4).
    13. Thomas Doring & Jan Schnellenbach, 2006. "What do we know about geographical knowledge spillovers and regional growth?: A survey of the literature," Regional Studies, Taylor & Francis Journals, vol. 40(3), pages 375-395.
    14. Yasunori Ouchida & Daisaku Goto, 2014. "Environmental Research Joint Ventures and Time-Consistent Emission Tax," Working Papers 2014.35, Fondazione Eni Enrico Mattei.
    15. Christoph Alsleben, 2005. "The Downside of Knowledge Spillovers: An Explanation for the Dispersion of High-tech Industries," Journal of Economics, Springer, vol. 84(3), pages 217-248, May.
    16. Marie‐Laure Cabon‐Dhersin & Romain Gibert, 2020. "R&D cooperation, proximity and distribution of public funding between public and private research sectors," Manchester School, University of Manchester, vol. 88(6), pages 773-800, December.
    17. Fosfuri, Andrea & Rønde, Thomas, 2003. "High-Tech Clusters, Technology Spillovers and Trade Secret Laws," CEPR Discussion Papers 4130, C.E.P.R. Discussion Papers.
    18. Ouchida, Yasunori & Goto, Daisaku, 2016. "Environmental research joint ventures and time-consistent emission tax: Endogenous choice of R&D formation," Economic Modelling, Elsevier, vol. 55(C), pages 179-188.
    19. B.G. Jean Jacques Iritié, 2018. "Economic issues of innovation clusters-based industrial policy: a critical overview," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 20(3), pages 286-307.
    20. Amir, Rabah & Jin, Jim Y. & Troege, Michael, 2008. "On additive spillovers and returns to scale in R&D," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 695-703, May.

    More about this item

    Keywords

    Research and Development; Uniform fee; Type-dependent fee; Spillover;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:resene:v:53:y:2018:i:c:p:133-146. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505569 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.