Environmental research joint ventures under emission taxes

The effect of environmental policy depends crucially on the strategic behavior of firms. Firms can undertake pollution abatement innovation cooperatively through environmental R&D joint ventures (RJVs). Environmental RJVs have not only environmental but also economic impacts. Three types of environmental RJV are discussed in this paper: R&D cartelization in which firms choose R&D efforts to maximize the joint profit, RJV competition in which firms share the R&D fruits to maximize their own profits, and RJV cartelization in which firms share R&D fruits and maximize the joint profit. An R&D cartelization minimizes output quantities, maximizes the total emission, and minimizes the social surplus. An RJV cartelization with a sufficiently high spillover coefficient maximizes R&D efforts, minimizes the total emission, and maximizes the social surplus.