TITLE:
Environmental Policies and Firm Behavior with Endogenous Investment in R & D
AUTHORS:
Emanuela Giusi Gaeta
KEYWORDS:
Environmental Policies, Technological Change, Energy Saving, Welfare Analysis
JOURNAL NAME:
Technology and Investment,
Vol.1 No.2,
May
25,
2010
ABSTRACT: This paper investigates upon the optimal amount of oil usage in an economy characterized by competitive firms and by a monopolistic innovator. It is close in spirit to Denicolo 1999 and Parry 2003. There are two alternative oil saving technologies: the conventional one is promptly available to firms while the advanced one, providing more efficiency in oil saving, must be paid to the monopolistic innovator. By assuming that innovation follows a Poisson process, whose arrival rate depends on the amount of resources invested in R & D, we show that central authority provides higher level of social welfare than market instruments.