Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322500 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11938
Publisher: 
CESifo GmbH, Munich
Abstract: 
This paper studies the relationship between climate policy, market power and innovation. Using data on patenting and firms' balance sheets, I document that firms with a higher degree of market power are, on average, more invested in dirty technologies than their direct competitors. I then develop a model of directed technical change with strategic innovation incentives, incorporating the empirical evidence. A carbon tax affects market power and both the intensity and the direction of innovation. In the calibrated model, a carbon tax lowers aggregate markups and increases clean innovation while also increasing dirty innovation by some firms.
Subjects: 
climate policy
market power
innovation
directed technical change
JEL: 
O30
O44
Q55
Document Type: 
Working Paper
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