Emission Taxation, Green Innovations and Inverted-U Aggregate R&D Efforts in a Linear State Oligopoly Game

Quaderni - Working Paper DSE N° 2000

19 Pages Posted: 11 Apr 2017

See all articles by Davide Dragone

Davide Dragone

University of Bologna - Department of Economics

Luca Lambertini

University of Bologna - Department of Economics

Arsen Palestini

University of Bologna - Department of Economics

Date Written: April 6, 2017

Abstract

We revisit the well known differential Cournot game with polluting emissions dating back to Benchekroun and Long (1998), proposing a version of the model in which environmental taxation is levied on emissions rather than the environmental damage. This allows to attain strong time consistency under open-loop information, and yields two main results which can be summarized as follows: (i) to attain a fully green technology in steady state, the regulator may equivalently adopt an appropriate tax rate (for any given number of firms) or regulate market access (for any given tax rate); (ii) if the environmental damage depends on emissions only (i.e., not on industry output) then the aggregate green R&D effort takes an inverted-U shape, in accordance with Aghion et al. (2005), and the industry structure maximising aggregate green innovation also minimises individual and aggregate emissions.

Keywords: pollution, green R&D, emission taxation, differential games

JEL Classification: C73, H23, L13, O31, Q52

Suggested Citation

Dragone, Davide and Lambertini, Luca and Palestini, Arsen, Emission Taxation, Green Innovations and Inverted-U Aggregate R&D Efforts in a Linear State Oligopoly Game (April 6, 2017). Quaderni - Working Paper DSE N° 2000, Available at SSRN: https://ssrn.com/abstract=2949818 or http://dx.doi.org/10.2139/ssrn.2949818

Davide Dragone (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, 40126
Italy
0039.051.2098880 (Phone)

HOME PAGE: http://https://www.unibo.it/sitoweb/davide.dragone/en

Luca Lambertini

University of Bologna - Department of Economics ( email )

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

Arsen Palestini

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

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