Strategic environmental policy and international market share rivalry under differentiated Bertrand oligopoly

We analyse strategic environmental policies under international Bertrand oligopoly when firms in different industries, located in different countries, produce differentiated products. Under cooperation, emission prices always exceed the joint marginal damage from pollution. Under non-cooperation, internationally nontradable and tradable emission permit prices are always higher than the domestic marginal damage from emissions (the Pigovian tax); emission taxes can also exceed the Pigovian tax. The non-cooperative emission prices under all instruments can exceed the joint pollution damage. Internationally tradable permits generate outcomes closest to cooperation — they result in the lowest pollution and the highest welfare among all instruments under non-cooperation. Pollution is the highest and welfare the lowest with taxes. Our results provide support for allowing international trade in emission permits even when governments choose their permit levels non-cooperatively.

International R&D formations and strategic environmental policy

We examine relations between strategic environmental policy, international R&D cartels and research joint ventures (RJVs), using a third-country model with Cournot duopoly. We indicate that forming an R&D/RJV cartel reduces governments' incentives to extract rent from consumers in the third country. Contrary to conventional wisdom, we find that social welfare under R&D cartels with full information sharing, i.e., RJV cartels, cannot surpass that under R&D/RJV competition, whereas forming an R&D/RJV cartel works well for environmental investment. Among the policy implications, we show that governments can maximize global welfare by collectively determining whether to allow R&D/RJV cartels.