Cooperation in Green R&D and Environmental Policies: Taxes versus Standards
Abstract
This article compares taxes and standards as environmental policies in a duopoly model where production generates pollution. To lower their emissions, firms invest in upstream green R&D (in the presence of technological spillovers) either cooperatively or non-cooperatively, and then compete in quantities. The outcomes of the two policies are identical when firms do not cooperate in R&D; R&D cooperation under taxes always improves social welfare by increasing abatement efforts and increasing consumer surplus. Conversely, R&D cooperation under standards pushes firms to reduce production, which is harmful for consumers but better for the environment.
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