Pollution Abatement R&D Investment Under Different Market Structures and Regulatory Regimes
Strandholm, John Cahill
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In this dissertation, I explore how the incentives for firms to invest in green technology are affected by changes in market structure and regulation. In the first chapter, I use an entry-deterrence model in which the incumbent decides whether or not to invest in green technology where an entrant can benefit from a technology spillover. I identify cases where entry is blockaded, the incumbent will under-invest in the technology to deter entry, and when the incumbent will accommodate entry. In the second chapter, I analyze a duopoly market with investment in green technology under two types of environmental regulation: a uniform fee where both firms face the same fee, and a type-dependent fee that is based on the firm's emissions. Firms can differ in their cost of investing in the technology. I find that social welfare is unambiguously higher under the type-dependent regime. In the third chapter, I use a two-stage game of a duopoly decided to adopt a green technology under emission fees, quotas, and a tradeable permit scheme. I find that firm and regulator incentives are misaligned as firms achieve higher profits under a quota, but social welfare is higher under a fee.