TY  - JOUR
AU  - Kolstad,Charles D.
TI  - Regulatory Choice with Pollution and Innovation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16303
PY  - 2010
Y2  - August 2010
UR  - http://www.nber.org/papers/w16303
L1  - http://www.nber.org/papers/w16303.pdf
N1  - Author contact info:
Charles D. Kolstad
Stanford Institute for Economic Policy Research
366 Galvez Street (Room 226)
Stanford, CA 94305-6015
Tel: 650.724.1463
Fax: 650.723.8611
E-Mail: ckolstad@stanford.edu
M3  - presented at "The Design & Implementation of US Climate Policy", May 13-14, 2010
AB  - This paper develops a simple model of a polluting industry and an innovating firm.  The polluting industry is faced with regulation and costly abatement.  Regulation may be taxes or marketable permits.  The innovating firm invests in R&D and develops technologies which reduce the cost of pollution abatement.  The innovating firm can patent this innovation and use a licensing fee to generate revenue.  In a world of certainty, the first best level of innovation and abatement can be supported by either a pollution tax or a marketable permit.  However, the returns to the innovator from innovation are not the same under the two regimes.  A marketable permit system allows the innovator to capture all of the gains to innovation; a tax system involves sharing the gains of innovation between the innovator and the polluting industry.
ER  -