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R&D Subsidies versus R&D Cooperation in a Duopoly with Spillovers and Pollution[Note 1. This is a substantially revised version of “Environmental Impact ...]
Author(s) -
Petrakis Emmanuel,
PoyagoTheotoky Joanna
Publication year - 2002
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00148
Subject(s) - subsidy , economics , welfare , microeconomics , duopoly , product (mathematics) , competition (biology) , mathematics , cournot competition , ecology , geometry , market economy , biology
We introduce pollution, as a by‐product of production, into a non‐tournament model of R&D with spillovers. Technology policy takes the form of either R&D subsidisation or pre‐competitive R&D cooperation. We show that, when the emissions tax is exogenous, the optimal R&D subsidy can be negative, i.e. there should be a tax on R&D, depending on the extent of the appropriability problem and the degree of environmental damage. In a wide class of cases, depending on the parameter values, welfare in the case of R&D cooperation, is lower than welfare in the case of R&D subsidisation.