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Strategic conflicts on the horizon: R&D incentives for environmental technologies

Heyen, Daniel (2016) Strategic conflicts on the horizon: R&D incentives for environmental technologies. Climate Change Economics, 7 (4). ISSN 2010-0078

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Identification Number: 10.1142/S2010007816500135

Abstract

Technological innovation is a key strategy for tackling climate change and other environmental problems. The required R&D expenditures however are substantial and fall on self-interested countries. Thus, the prospects of successful innovation critically depend on innovation incentives. This paper focuses on a specific mechanism for strategic distortions in this R&D game. In this mechanism, the outlook of future conflicts surrounding technology deployment directly impacts on the willingness to undertake R&D. Apart from free-riding, a different deployment conflict with distortive effects on innovation can occur. Low deployment costs and heterogeneous preferences might give rise to 'free-driving' (Weitzman 2015): The country with the highest preference for technology deployment, the free driver, may dominate the deployment outcome to the detriment of others. The present paper develops a simple two stage model for analysing how technology deployment conflicts, free-riding and free-driving, shape R&D incentives of two asymmetric countries. The framework gives rise to rich findings, underpinning the narrative that future deployment conflicts extend to the R&D stage. While the outlook of free-riding unambiguously weakens innovation incentives, the findings for free-driving are more complex, including the possibility of excessive R&D as well as incentives for counter-R&D.

Item Type: Article
Official URL: http://www.worldscientific.com/worldscinet/cce
Additional Information: © 2016 The Author
Divisions: Grantham Research Institute
Subjects: T Technology > T Technology (General)
JEL classification: D - Microeconomics > D6 - Welfare Economics > D62 - Externalities
H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q55 - Technological Innovation
Sets: Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Date Deposited: 21 Oct 2016 12:55
Last Modified: 20 Feb 2019 11:47
URI: http://eprints.lse.ac.uk/id/eprint/68104

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