Timing games of development of environmental technology by firms under the environmental regulations

By focusing on regulating the oligopoly firms that discharge pollution directly into the environment and the relationships between the level of enforcement by the regulations of the government and the incentive to introduce new technology by the regulated firms are analyzed. This research clarifies the monotonicity of relationships between the level of strictness of regulations and the market incentive to develop new technology. When the cost of introducing new technology is relatively high, the environmental tax does not work as an effective regulation. In this case, using the patent system as a supplement for the stricter regulation can maintain incentives of technological development of the regulated firms. Obviously, there are many research problems surrounding this matter. Firstly, new environmental technology is not necessarily represented by a decrease in the marginal cost: a study on the various types of technologies may be beneficial. Secondly, the market externalities of technological diffusion and standardization should be considered. Finally, explicit modeling of an environmental subsidy system is necessary