Technology Licensing and Environmental Policy Instruments: Price Control versus Quantity Control

32 Pages Posted: 17 Aug 2016 Last revised: 19 Jun 2020

See all articles by Seung-Gyu Sim

Seung-Gyu Sim

Aoyama Gakuin University

Sungwan Hong

Department of Economics, Pennsylvania State University

Date Written: March 28, 2020

Abstract

This paper analyzes the welfare implications of abatement technology licensing under taxation and emission trading schemes. We demonstrate that a firm with a better abatement technology optimally sells a per-unit royalty license to a competitor under both schemes but offers a higher royalty rate under the latter. The emission trading scheme may outperform the taxation scheme regarding social surplus by inducing more production by the licensor and less production by the licensee. These are reversals of the welfare implications suggested by the literature that adopts a partial equilibrium approach or omits either the market for the advanced technology or the final goods.

Keywords: Emission Trading, Taxation, Technology Licensing

JEL Classification: H23, Q55, Q58

Suggested Citation

Sim, Seung-Gyu and Hong, Sungwan, Technology Licensing and Environmental Policy Instruments: Price Control versus Quantity Control (March 28, 2020). Resource and Energy Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2822784 or http://dx.doi.org/10.2139/ssrn.2822784

Seung-Gyu Sim (Contact Author)

Aoyama Gakuin University ( email )

4-4-25 Shibuya, Shibuya-ku
Tokyo, 150-8366
Japan

Sungwan Hong

Department of Economics, Pennsylvania State University ( email )

University Park, PA 16802
United States

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