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Environmental innovation and policy harmonization in international oligopoly

Published online by Cambridge University Press:  08 October 2012

Keisuke Hattori
Keisuke Hattori*
Affiliation:
Faculty of Economics, Osaka University of Economics, 2-2-8 Osumi, Higashiyodogawa-ku, Osaka 533-8533, Japan. Email: hattori@osaka-ue.ac.jp
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Abstract

This paper investigates firm incentives for developing environmentally clean technologies in a simple two-country model with international oligopoly and lack of regulatory commitment, and compares the incentives under price and quantity regulations with and without policy cooperation between governments. We examine whether policy coordination (choices of policy instruments or policy harmonization) encourages environmental innovation when firms have strategic innovation incentives that may influence future regulation. In a case where policies are non-cooperatively set by governments, quantity regulations yield a greater static benefit for countries; however, dynamically, price regulations encourage more innovation than quantity regulations when environmental damages are not so large. Under both price and quantity regulation regimes, cooperative policy harmonization necessarily enhances net benefits in each country, whereas it discourages firms' innovation incentives when environmental damages are not so small.

Type
Research Article
Information
Environment and Development Economics , Volume 18 , Issue 2 , April 2013 , pp. 162 - 183
Copyright
Copyright © Cambridge University Press 2012

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