Green Patents in an Oligopolistic Market with Green Consumers

We analyze the impact of patent policies and emission taxes on green innovation. We allow for strategic interactions of firms in a duopolistic market in the presence of green conscious consumers. We identify a paradoxical effect of increasing emission taxes beyond a certain threshold which results in an increase in emissions. Decreasing patenting costs mitigates this paradox, while the impact of tightening patentability requirements is more complex. Moreover, we show that the greater the proportion of green-conscious consumers, the less likely firms are to license a green patent, which results in higher emissions levels. With green consumers, the lowest emissions occur for an intermediate range of taxes for which licensing does occur. Finally, we find that while tax increases lead to a switch from overinvestment to underinvestment in the absence of green conscious consumers, they have the reverse effect in their presence.