Cournot Competition and "Green" Innovation: An Inverted-U Relationship

We examine the relationship between competition and innovation in an industry where production is polluting and R&D aims to reduce emissions ("green" innovation). We present an n-firm oligopoly where firms compete in quantities and decide their investment in "green" R&D. When environmental taxation is exogenous, aggregate R&D investment always increases with the number of firms in the industry. Next we analyse the case where the emission tax is set endogenously by a regulator (committed or time-consistent) with the aim to maximise social welfare. We show that an inverted-U relationship exists between aggregate R&D and industry size under reasonable conditions, and is driven by the presence of R&D spillovers.


Issue Date:
Aug 05 2015
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/207397
Total Pages:
24
JEL Codes:
Q55; Q56; O30; L13
Series Statement:
CCSD
073.2015




 Record created 2017-04-01, last modified 2017-08-22

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