Environmental regulations in private and mixed duopolies: Taxes on emissions versus green R&D subsidies

In this article, we compare two kinds of environmental regulations-emissions taxes and green R&D subsidies-in private and mixed-duopoly markets in the presence of R&D spillovers. We show that a green R&D subsidy is better (worse) than an emissions tax when the green R&D is efficient (inefficient), irrespective of R&D spillovers, whereas the existence of a publicly owned firm encourages the government to adopt a subsidy policy. We also show that the optimal policy choice depends on R&D efficiency and spillovers. In particular, when green R&D is inefficient and the spillover rate is low (high), the government should choose an emissions tax and (not) privatize the state-owned firm. When green R&D is efficient, however, an R&D subsidy is better, but a privatization policy is not desirable for society, irrespective of spillovers.

Automated summary

This article compares the effects of green R&D subsidies and emissions taxes in private and mixed-duopoly markets based on R&D spillovers. A green R&D subsidy is better than an emissions tax in the presence of efficient green R&D, and the optimal policy choice depends on R&D efficiency and spillovers. When green R&D is efficient, an R&D subsidy is preferred, but privatization is not desirable for society.