Cournot duopoly and environmental R&D under regulator’s precommitment to an emissions tax

ABSTRACT

This study examines the environmental R&D (E-R&D) of Cournot duopolists with end-of-pipe technology under a regulator’s precommitment to an emissions tax. Under technological spillover effect, the government invariably prefers E-R&D cartelization to E-R&D competition. Highly contrary to earlier studies, consumer surplus is not necessarily maximized by environmental research joint venture cartelization, although this offers private and social incentives.

KEYWORDS:

• R&D coordination
• environmental R&D
• end-of-pipe technology
• precommitment ability
• emissions tax

JEL CLASSIFICATION:

• O32
• L13
• Q55
• Q58

Acknowledgements

The authors are grateful to Makoto Okamura for his constructive comments, and all remaining errors are ours.

Notes

¹ For such a model under time-consistent emissions tax/subsidy, see Poyago-Theotoky (2007) and Ouchida and Goto (2014).

² This model is based on Chiou and Hu (2001) and Poyago-Theotoky and Teerasuwannajak (2002).

³ To guarantee the positive value of emissions abatement in equilibrium, we assume that .

⁴ The assumption guarantees that for all , and .

⁵ Proposition 5 and Proposition 6(iii) still hold, even if production cost is . For details, see Appendix A which is an extended analysis of Wang and Wang (2009, Section 4).

⁶ When , is arbitrary for all , , and . Consequently, firms do not necessarily prefer E-R&D cartelization under precommitment to an emissions tax.

⁷ For details, see e.g. Nevena and Röller (2005), Farrell and Katz (2006), Carlton (2007), Salop (2010) and Kaplow (2012).

⁸ For details, see Comparative statics section.

⁹ For details, see Table 1 of Kamien, Muller, and Zang (1992).

Additional information

Funding

The authors are grateful to the Research Grant on Environmental Policy Studies of the Ministry of the Environment of Japan, No. 6, 2009–2011; KAKENHI [No. 22730200 and No. 25380303].