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
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
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