Cooperation in green R &D and environmental policies: tax or standard

• Published in: Journal of regulatory economics Vol. 66; no. 2-3; pp. 205 - 237
• Main Authors: Cabon-Dhersin, Marie-Laure, Raffin, Natacha
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.12.2024; Springer Nature B.V; Springer Verlag
• Subjects: Companies; Cooperation; Duopoly; Economics; Economics and Finance; Emissions; Environmental policy; Environmental tax; Industrial Organization; Microeconomics; Original Article; Public Finance; Quantitative Finance; R&D; Research & development; Taxation; Taxes; Q55; Cournot competition; Taxes; P48; Policy games; Spillovers; R& D cooperation; Competition policy; Standards; L13; 032
• ISSN: 0922-680X; 1573-0468
• DOI: 10.1007/s11149-024-09475-4

In this article, we compare a tax and a standard as environmental tools depending on firms’ R &D strategy and the government’s ability to credibly commit to its policy. We consider a duopoly model where production is polluting and in an effort to mitigate emissions, firms invest in green R &D (in the presence of technological spillovers) either cooperatively or non-cooperatively. We explore two policy games in which the regulator establishes an emission tax or an emission standard either before or after firms engage in R &D. We endogenize both the firms’ R &D strategy and the regulator’s choice of policy instrument. We find that an emission standard is adopted only when firms choose not to cooperate. Conversely, a tax is desirable when firms collaborate in green R &D. Moreover, we expand our framework by offering the opportunity for the regulator to authorize or ban cooperation in green R &D before the firms make their strategic decisions.