TY - JOUR
T1 - R&D in clean technology
T2 - A project choice model with learning
AU - Oikawa, Koki
AU - Managi, Shunsuke
N1 - Funding Information:
We are grateful to Hideki Konishi, Takeshi Ogawa, and the seminar and conference participants at GRIPS, Hitotsubashi University, Tohoku University, the JEA meeting, and the SEEPS meeting for their helpful comments. We also thank an anonymous reviewer for his or her insightful comments and suggestions. This research was supported by the Research Institute of Science and Technology for Society (RISTEX), Japan Science and Technology Agency (JST).
Publisher Copyright:
© 2015 Elsevier B.V.
PY - 2015/9/1
Y1 - 2015/9/1
N2 - In this study, we investigate the qualitative and quantitative effects of an R&D subsidy for a clean technology and a Pigouvian tax on a dirty technology on environmental R&D when it is uncertain how long the research takes to complete. The model is formulated as an optimal stopping problem, in which the number of successes required to complete the R&D project is finite and learning about the probability of success is incorporated. We show that the optimal R&D subsidy with the consideration of learning is higher than that without it. We also find that an R&D subsidy performs better than a Pigouvian tax unless suppliers have sufficient incentives to continue cost-reduction efforts after the new technology successfully replaces the old one. Moreover, by using a two-project model, we show that a uniform subsidy is better than a selective subsidy.
AB - In this study, we investigate the qualitative and quantitative effects of an R&D subsidy for a clean technology and a Pigouvian tax on a dirty technology on environmental R&D when it is uncertain how long the research takes to complete. The model is formulated as an optimal stopping problem, in which the number of successes required to complete the R&D project is finite and learning about the probability of success is incorporated. We show that the optimal R&D subsidy with the consideration of learning is higher than that without it. We also find that an R&D subsidy performs better than a Pigouvian tax unless suppliers have sufficient incentives to continue cost-reduction efforts after the new technology successfully replaces the old one. Moreover, by using a two-project model, we show that a uniform subsidy is better than a selective subsidy.
KW - Environmental technology
KW - Learning
KW - Pigouvian tax
KW - R&D subsidy
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U2 - 10.1016/j.jebo.2015.06.015
DO - 10.1016/j.jebo.2015.06.015
M3 - Article
AN - SCOPUS:84936944964
SN - 0167-2681
VL - 117
SP - 175
EP - 195
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
ER -