Cournot Competition and 'Green' Innovation: An Inverted-U Relationship

24 Pages Posted: 6 Aug 2015

See all articles by Luca Lambertini

Luca Lambertini

University of Bologna - Department of Economics

Joanna Poyago-Theotoky

La Trobe University; Rimini Center for Economic Analysis

Alessandro Tampieri

University of Florence - Department of Economics and Management; University of Luxembourg

Date Written: August 5, 2015

Abstract

We examine the relationship between competition and innovation in an industry where production is polluting and R&D aims to reduce emissions ("green" innovation). We present an n-firm oligopoly where firms compete in quantities and decide their investment in "green" R&D. When environmental taxation is exogenous, aggregate R&D investment always increases with the number of firms in the industry. Next we analyse the case where the emission tax is set endogenously by a regulator (committed or time-consistent) with the aim to maximise social welfare. We show that an inverted-U relationship exists between aggregate R&D and industry size under reasonable conditions, and is driven by the presence of R&D spillovers.

Keywords: 'Green' R&D, R&D Spillovers, Emission Taxation, Time-Consistent Emission Tax, Pre-Commited Emission Tax.

JEL Classification: Q55, Q56, O30, L13

Suggested Citation

Lambertini, Luca and Poyago-Theotoky, Joanna and Tampieri, Alessandro, Cournot Competition and 'Green' Innovation: An Inverted-U Relationship (August 5, 2015). FEEM Working Paper No. 073.2015, Available at SSRN: https://ssrn.com/abstract=2640032 or http://dx.doi.org/10.2139/ssrn.2640032

Luca Lambertini (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 2092600 (Phone)
+39 051 2092664 (Fax)

Joanna Poyago-Theotoky

La Trobe University ( email )

Melbourne, Victoria 3086
Australia

HOME PAGE: http://poyago-theotoky.com

Rimini Center for Economic Analysis ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

HOME PAGE: http://poyago-theotoky.com

Alessandro Tampieri

University of Florence - Department of Economics and Management ( email )

Via delle Pandette, 9
Firenze, Florence 50127
Italy

University of Luxembourg ( email )

Avenue de la Faïencerie
162a
Luxembourg City, Luxembourg L-1511
Luxembourg

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