Understanding the Dynamics of Clean Technology: Implications for Policy and Industry
Environmental Economics and Policy Studies, (2018), 20 (2), pp. 365-386.
Posted: 24 Oct 2017 Last revised: 3 Aug 2018
Date Written: October 23, 2017
Using an optimal control approach, I examine the effectiveness of various strategies for firms investing in clean technology when faced with an emissions tax in a duopolistic market. Explicitly allowing for the cumulative nature of R&D, I show that emissions per unit of output are lowest when the firms cooperate in R&D, as compared to the scenarios when they compete in R&D or merge into a single entity. It is shown that R&D cooperation leads to the highest level of social welfare among the three alternative scenarios, and that a profit maximizing firm will never choose the most environmentally conscience investment strategy. In contrast to the traditional static analysis, which ignores the temporal effects associated with R&D, my dynamic analysis has implications for emission tax policy and environmental innovation to improve overall welfare.
Keywords: Dynamic investment, Clean technology, Emission taxation
JEL Classification: C61, O31, Q55
Suggested Citation: Suggested Citation