Endogenous Abatement Technology Agreements under Environmental Regulation

In a domestic market, duopoly produces homogeneous final good, pollution, pollution abatement, and R&D, which reduces abatement cost. One of the firms (foreign) has superior technology. The government regulates by levying tax to maximize welfare. We consider potential implementation three innovation agreements: cooperative research joint venture (RJV), non-cooperative RJV, licensing. (non-cooperative) (do not) internalize R&D spillovers. show that, for firm, RJV dominates, licensing is least desirable alternative. Although dominant foreign it not implementable. Both RJVs are Implementation both types improves competitiveness firm This study yields an important policy prescription: subsidy that induces accept feasible when strictly prefers always welfare improving.