Emission Taxes and the Nexus between Technology Improvement and Technology Adoption

Abstract

We study the impact of an emissions tax on both abatement technology improvement (R&D) and technology adoption. An upstream industry with market power (monopoly or duopoly) develops an improved abatement technology for polluting downstream firms that are subject to an emissions tax and can adopt the new technology. We study first- and second-best taxation for different market forms and identify novel moments of second-best emission taxes.