R&D for green technologies in a dynamic oligopoly: Schumpeter, arrow and inverted-U’s

•We investigate a differential oligopoly game where production pollutes the environment.•Firms’ behavior is regulated via emission taxes and a price cap.•The resulting aggregate investment in green R&D is concave in the number of firms.•Our analysis indicates that inverted-U-shaped investment cu...

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Bibliographic Details
Published inEuropean journal of operational research Vol. 249; no. 3; pp. 1131 - 1138
Main Authors Feichtinger, Gustav, Lambertini, Luca, Leitmann, George, Wrzaczek, Stefan
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 16.03.2016
Elsevier Sequoia S.A
Subjects
Clean technology
Dynamic games
Environmental externality
Externality
Game theory
Oligopoly
R&D
Research & development
Studies
R&D
Dynamic games
Environmental externality
Oligopoly
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Summary:•We investigate a differential oligopoly game where production pollutes the environment.•Firms’ behavior is regulated via emission taxes and a price cap.•The resulting aggregate investment in green R&D is concave in the number of firms.•Our analysis indicates that inverted-U-shaped investment curves are indeed generated by regulatory measures. We extend a well-known differential oligopoly game to encompass the possibility for production to generate a negative environmental externality, regulated through Pigouvian taxation and price caps. We show that, if the price cap is set so as to fix the tolerable maximum amount of emissions, the resulting equilibrium investment in green R&D is indeed concave in the structure of the industry. Our analysis appears to indicate that inverted-U-shaped investment curves are generated by regulatory measures instead of being a ‘natural’ feature of firms’ decisions.
ISSN:0377-2217
1872-6860
DOI:10.1016/j.ejor.2015.09.025