Regulatory choice with pollution and innovation

Description

"This paper develops a simple model of a polluting industry and an innovating firm. The polluting industry is faced with regulation and costly abatement. Regulation may be taxes or marketable permits. The innovating firm invests in R&D and develops technologies which reduce the cost of pollution abatement. The innovating firm can patent this innovation and use a licensing fee to generate revenue. In a world of certainty, the first best level of innovation and abatement can be supported by either a pollution tax or a marketable permit. However, the returns to the innovator from innovation are not the same under the two regimes. A marketable permit system allows the innovator to capture all of the gains to innovation; a tax system involves sharing the gains of innovation between the innovator and the polluting industry"--National Bureau of Economic Research web site.

Subjects

Series Statement

• NBER working paper series -- working paper 16303
• Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16303.

Links

• http://www.nber.org/papers/w16303