Technology Diffusion and International Environmental Agreements

Abstract

This paper studies countries' incentives to develop advanced pollution abatement technologies when technology may spill over across countries, and pollution abatement is a global public good. First, we show that at the Nash equilibrium of a simultaneous-move game with R&D investment and emission abatement, whether the free rider effect prevails and under-investment and excess emissions occur, as conventional wisdom suggests, depends on the degree of technology spillovers and the effect of R&D on the marginal abatement costs. Then we consider a treaty participation game where treaty members cooperate in R&D and emission reduction, and show that whether the treaty members gain by preventing technology spillovers to non-members also depends on the effect of R&D on the marginal abatement costs. Technology diffusion to non-member is not necessarily welfare-reducing: whether it increases the equilibrium global welfare depends on the marginal abatement costs, marginal damages, and the cost of R&D.

Keywords: International environmental agreement, technology innovation and spillovers

JEL Classification: Q55, H87, C72