Environmental Policies and Firm Behavior with Endogenous Investment in R & D

Emanuela Giusi Gaeta

University of Rome “Tor Vergata”, Rome, Italy.

DOI: 10.4236/ti.2010.12009                

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.

Keywords

Environmental Policies, Technological Change, Energy Saving, Welfare Analysis

Conflicts of Interest

The authors declare no conflicts of interest.

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