Asymmetric Innovation Agreements Under Environmental Regulation

44 Pages Posted: 6 Feb 2018

See all articles by Naoto Aoyama

Naoto Aoyama

Aomori Public University

Emilson Delfino Silva

University of Alberta - Department of Marketing, Business Economics & Law

Date Written: December 14, 2017

Abstract

In a domestic market, a duopoly produces a homogeneous final good, pollution, pollution abatement and R&D. One of the firms (foreign) has superior technology. The government regulates the duopoly by levying a pollution tax to maximize domestic welfare. We consider the potential implementation of three innovation agreements: cooperative research joint venture (RJV), non-cooperative RJV and licensing. In the cooperative (non-cooperative) RJV, the firms (do not) internalize R&D spillovers. We show that, for the domestic firm, the cooperative RJV dominates and licensing is the least desirable alternative. Although licensing is dominant for the foreign firm, it is not implementable. Both RJVs are implementable. While the non-cooperative RJV is more likely the greater the degrees of asymmetry (in terms of efficiency and R&D spillover rates) between the firms, the cooperative RJV is more likely the lower the degrees of asymmetry. Implementation of both types of RJVs improve the competitiveness of the domestic firm and welfare. A subsidy policy that induces the foreign firm to accept a feasible cooperative RJV when it strictly prefers a feasible non-cooperative RJV is always welfare improving.

Keywords: environmental regulation, innovation, research joint ventures, licensing

JEL Classification: D430, D620, F230, L130, L240, L510, Q550, Q580

Suggested Citation

Aoyama, Naoto and Delfino Silva, Emilson, Asymmetric Innovation Agreements Under Environmental Regulation (December 14, 2017). CESifo Working Paper Series No. 6782. Available at SSRN: https://ssrn.com/abstract=3118171

Naoto Aoyama

Aomori Public University ( email )

153-4, Yamazaki
Aomori, 030-0196
Japan

Emilson Delfino Silva (Contact Author)

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

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