Abstract

This article compares taxes and standards as environmental policies in a duopoly model where production generates pollution. To lower their emissions, firms invest in upstream green R &D (in the presence of technological spillovers) either cooperatively or non-cooperatively, and then compete in quantities. The outcomes of the two policies are identical when firms do not cooperate in R &D; R &D cooperation under taxes always improves social welfare by increasing abatement efforts and increasing consumer surplus. Conversely, R &D cooperation under standards pushes firms to reduce production, which is harmful for consumers but better for the environment.

Co-authored with Marie‐Laure Cabon‐Dhersin.