Capacity investment and green R&D in a dynamic oligopoly under the potential shift in environmental damage |
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| Institution: | 1. Warsaw School of Economics, International Comparative Studies Department, Warsaw, Poland;2. Centre for Social and Economic Research, Warsaw, Poland;1. Faculty of Economics, Kanagawa University, 3-27-1, Rokkakubashi, Kanagawa-ku, Yokohama, Kanagawa, 221-8686, Japan;2. Institute of Social Science, The University of Tokyo, 7-3-1, Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan;1. INSEEC Business School, France;2. University of Lille, Office B655, 104 Avenue du Peuple Belge, Lille, 59004, France;3. IPAG Business School, IPAG LAB, France;4. EDC Paris Business School, France |
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| Abstract: | We develop a differential oligopoly game to investigate firms’ capacity investment and green R&D efforts in the presence of the potential shift in environmental damage and under the spillover effect of R&D activities among firms. We find that when both the probability of potential shift in environmental damage and the efficacy of R&D activities are high, the spillover effect will discourage the R&D effort but encourage the capacity investment. Otherwise, the spillover effect will encourage the R&D effort but discourage the capacity investment. Moreover, the potential shift in environmental damage can significantly impact the capacity and green R&D decisions as well as the Pigouvian tax, especially in the case of a large number of firms, a high profitability of the product, a high level of interest rate, and a high level of R&D spillover among firms. |
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| Keywords: | Differential games R&D Spillover Environmental externality Regime shift Capacity investment |
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