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Timing and Commitment of Environmental Policy, Adoption of New Technology, and Repercussions on R&D

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Abstract

We investigate the interplay between environmental policy, incentives to adoptnew technology, and repercussions on R&D. We study a model where a monopolistic upstream firm engages in R&D and sells advanced abatement technology to polluting downstream firms. We consider four different timing and commitment regimes of environmental tax and permit policies: ex post taxation (or issuing permits), interim commitment to a tax rate (a quota of permits) after observing R&D success but before adoption, and finally two types of ex antecommitment before R&D activity, one with a unique tax rate (quota of permits), the other one with a menu of tax rates (permit quotas). We study the second best tax and permit policies and rank these with respect to welfare. In particular, we find that commitment to a menu of tax rate dominates all other policy regimes.

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  1. Department of Economics, Kiel University, Olshausenstrasse 40, 24098, Kiel, Germany

    Till Requate

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  1. Till Requate
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Correspondence to Till Requate.

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Requate, T. Timing and Commitment of Environmental Policy, Adoption of New Technology, and Repercussions on R&D. Environ Resource Econ 31, 175–199 (2005). https://doi.org/10.1007/s10640-005-1770-x

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  • DOI: https://doi.org/10.1007/s10640-005-1770-x

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