Cournot Competition and “Green” Innovation: An Inverted-U Relationship

By Luca Lambertini, Joanna Poyago-Theotoky, Alessandro Tampieri. 2017

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We examine the relationship between competition and innovation in an industry where production is polluting and R&D aims to reduce emissions ("green" innovation). We present an n-firm oligopoly where firms compete in quantities and decide their investment in "green" R&D. When environmental taxation is exogenous, aggregate R&D investment always increases with the number of firms in the industry. Next we analyse the case where the emission tax is set endogenously by a regulator (committed or time-consistent) with the aim to maximise social welfare. We show that an inverted-U relationship exists between aggregate R&D and industry size under reasonable conditions, and is driven by the presence of R&D spillovers.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/9fc3e5645ee5b69c6e061c35e4072767dfc5335e