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Regulation, Free-Riding Incentives, and Investment in R&D with Spillovers

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  • Espinola-Arredondo, Ana
  • Strandholm, John
  • 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.
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Suggested Citation

  • Espinola-Arredondo, Ana & Strandholm, John & Munoz-Garcia, Felix, 2017. "Regulation, Free-Riding Incentives, and Investment in R&D with Spillovers," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258016, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea17:258016
    DOI: 10.22004/ag.econ.258016
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    Cited by:

    1. 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).
    2. 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).
    3. 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.
    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. Fukuda, Katsufumi & Ouchida, Yasunori, 2020. "Corporate social responsibility (CSR) and the environment: Does CSR increase emissions?," Energy Economics, Elsevier, vol. 92(C).
    6. 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.
    7. 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).
    8. John C. Strandholm, 2020. "Promotion of Green Technology under Different Environmental Policies," Games, MDPI, vol. 11(3), pages 1-23, August.

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    More about this item

    Keywords

    Industrial Organization; Resource/Energy Economics and Policy; Institutional and Behavioral Economics;
    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

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