Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/92956 
Authors: 
Year of Publication: 
2013
Series/Report no.: 
Volkswirtschaftliche Diskussionsreihe No. 321
Publisher: 
Universität Augsburg, Institut für Volkswirtschaftslehre, Augsburg
Abstract: 
In the recent last years, in particular in the aftermath of the global financial and economic crisis, many countries initiated economic recovery plans with a major focus on stimulating green entrepreneurial activities to revive economic growth. Further, the recovery plans intend to improve a country's awareness for a direct orientation towards (strong) sustainability and green growth. Before discussing strategies towards green growth, in this paper we propose a novel framework to increase our understanding of the interplay of process R&D activities, the strategic price and environmental quality setting of heterogeneous entrepreneurs in a market where consumers feel up to paying for environmental quality improvement of a vertically differentiated good. In the paper we decompose an entrepreneur's incentive conducting process R&D in four parts. In particular we show that an entrepreneur's incentive of conducting own process R&D is reduced due to the existence of knowledge-spillovers. Moreover, due to the strategic complementarities, both in prices as well as in environmental quality, a strategic effect reinforces the negative consequences of the spillover-effect. We show that the externalities in the model require corrections based upon a mixture of fiscal policies and a process R&D subvention scheme establishing a first-best solution. We further thoroughly discuss the implementation of a second-best solution and derive environmental policy implications.
Subjects: 
Technological change
Process R&D
Green consumerism
Vertical differentiation
Emission tax
Environmental quality
Environmental policy
JEL: 
Q55
Q58
O31
O33
D43
L13
L15
Document Type: 
Working Paper

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