Policy reform of emission taxes and environmental research and development incentives in an international Cournot model with product differentiation

Abstract

Abstract This paper studies multilateral and unilateral policy reforms of environmental R&D subsidies and emission taxes in a two-country Cournot model with oligopolistic interdependence. The analysis indicates, inter alia , that there is a potential family of multilateral and unilateral policy reforms which can be set by pollution-intensive and pollution-moderate countries to reduce global emissions. In particular, the analysis suggests that a unilateral increase in the subsidy in the pollution-moderate country may reduce global emissions. The multilateral policy reform of the subsidy and tax in the pollution-intensive country can also reduce global emissions and increase welfare under certain conditions. The role of product differentiation in the context of policy reform is also examined.