Using Auctions for Pollution Rights as Indirect Incentives for Investments in Green Technologies
Quaderni DSE Working Paper No. 729
16 Pages Posted: 9 Mar 2011
Date Written: March 8, 2011
Abstract
Acquired wisdom has it that the allocation of pollution rights to firms hinders their willingness to undertake uncertain R&D projects for environmental-friendly technologies. We revisit this issue in a model where firms strategically choose whether to participate in an auction to attain pollution permits, or instead invest in green R&D, to show that, somewhat counterintuitively, a side effect of the auction is in fact that of fostering environmental R&D in an admissible range of the model parameters.
Keywords: environmental externalities, auctions, pollution rights, pollution-reducing innovation
JEL Classification: L13, Q55
Suggested Citation: Suggested Citation
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