Environmental research joint ventures and time-consistent emission tax: Endogenous choice of R&D formation

- We examine a regulator's inability to precommit to an emissions tax.
- We provide new analytical framework of a firm's endogenous choice of R&D formation.
- Socially preferred environmental R&D formation is assessed in a Cournot duopoly.
- R&D competition is socially preferred in cases of extensive damage and low R&D costs.
- With no such damage or R&D costs, research joint venture cartelization is preferred.

This paper provides a new analytical framework of endogenous choice for environmental R&D formation. Furthermore, this paper presents an examination of environmental R&D of four types in a Cournot duopoly in a setting where a regulator has no precommitment ability for an emission tax. Results reveal that if the environmental damage is slight, or given severe environmental damage and large inefficiency in environmental R&D costs, then social welfare under environmental research joint venture (ERJV) cartelization is higher than in the other three scenarios: environmental R&D competition, environmental R&D cartelization, and ERJV competition. However, if environmental damage is severe, and if a firm's R&D costs are limited, then, in stark contrast to results of previous studies, environmental R&D competition is socially superior to any of the other three scenarios, although R&D competition is a case without information sharing and R&D coordination.