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Inducing Innovation in the Environmental Technology of Oligopolistic Firms
Author(s) -
Innes Robert,
Bial Joseph J
Publication year - 2002
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00177
Subject(s) - competitor analysis , oligopoly , incentive , industrial organization , business , environmental regulation , government (linguistics) , environmental policy , automotive industry , government regulation , competition (biology) , porter hypothesis , environmental pollution , cournot competition , economics , environmental economics , microeconomics , natural resource economics , marketing , engineering , environmental protection , ecology , environmental science , philosophy , law , aerospace engineering , linguistics , biology , political science , china
This paper characterizes environmental regulations which induce polluting Bertrand competitors to invest efficiently in environmental R&D. Post–innovation benefits to raising rivals’ costs provide firms with incentives to innovate. Although optimal behavior cannot be elicited with pollution taxes alone, an optimum can be achieved by combining emission taxes with environmental performance standards that are higher for firms which reveal superior environmental technologies. Faced with this policy, successful innovators voluntarily reveal their technological discovery to the government, despite the apparent regulatory penalty that results. Implications for automotive fuel regulation are discussed.