Commitment to Environmental Taxation under R&D Competition
12:00 - 13:00
One of the main arguments behind environmental regulation is that it provides incentives to adopt more efficient abatement technologies. In this paper we compare different commitment tax schemes in terms of adoption and efficiency when accounting for a non-competitive R&D sector that offers two technologies with differentiated value both in terms of quality and adaptability to polluting firms. Our modelling choice is inspired by the Californian Green Chemistry Initiative and responds to the need to analyze the role of environmental regulation in complex R&D market structures. In contrast with Parry (1995) and Requate (2005), our main result is that the ex ante second best tax may be higher or lower than pollution marginal damage. Moreover, we are the first to characterize how commitment to environmental taxes determines the strategies of R&D firms, which in turn determines the adoption pattern of the most efficient abatement technology.
JEL Classification: L5, Q2, Q28
Key words: environmental innovation, tax, R&D competition