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Abstract
Technological innovation is a key strategy for tackling environmental problems. The required R&D expenditures however are substantial and fall on self-interested countries. Thus, the prospects of successful innovation critically depend on innovation incentives. This paper focuses on a specific mechanism for strategic distortions in this R&D game. In this mechanism, the outlook of future conflicts surrounding technology deployment directly impacts on the willingness to undertake R&D. Apart from free-riding, a different deployment conflict with distortive effects on innovation may occur: Low deployment costs and heterogeneous preferences might give rise to 'free-driving'. In this recently considered possibility (Weitzman 2012), the country with the highest preference for technology deployment, the free-driver, may dominate the deployment outcome to the detriment of others. The present paper develops a simple two stage model for analyzing how technology deployment conflicts, free-riding and free-driving, shape R&D incentives of two asymmetric countries. The framework gives rise to rich findings, underpinning the narrative that future deployment conflicts pull forward to the R&D stage. While the outlook of free-riding unambiguously weakens innovation incentives, the findings for free-driving are more complex, including the possibility of super-optimal R&D and incentives for counter-R&D.
Document type: | Working paper |
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Series Name: | Discussion Paper Series, University of Heidelberg, Department of Economics |
Volume: | 0584 |
Place of Publication: | Heidelberg |
Date Deposited: | 02 Mar 2015 07:52 |
Date: | February 2015 |
Number of Pages: | 26 |
Faculties / Institutes: | The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics |
DDC-classification: | 330 Economics |
Series: | Discussion Paper Series / University of Heidelberg, Department of Economics |