Abstract
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.
Original language | English |
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Pages (from-to) | 175-195 |
Number of pages | 21 |
Journal | Journal of Economic Behavior and Organization |
Volume | 117 |
DOIs | |
Publication status | Published - 2015 Sep 1 |
Keywords
- Environmental technology
- Learning
- Pigouvian tax
- R&D subsidy
ASJC Scopus subject areas
- Economics and Econometrics
- Organizational Behavior and Human Resource Management