STRATEGIC CONFLICTS ON THE HORIZON: R&D INCENTIVES FOR ENVIRONMENTAL TECHNOLOGIES

Abstract

Technological innovation is a key strategy for tackling climate change and other 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 can occur. Low deployment costs and heterogeneous preferences might give rise to 'free-driving' (Weitzman 2015): 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 analysing 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 extend 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 excessive R&D as well as incentives for counter-R&D.

Strategic Implications of Counter-Geoengineering: Clash or Cooperation?

“…The first pertains to research on non-cooperative geoengineering outcomes under different types of asymmetry (Moreno-Cruz 2015;Manoussi and Xepapadeas 2017;Manoussi et al 2018;Urpelainen 2012;Weitzman 2015;Heyen 2016). These papers, with the exception of Weitzman (2015) and Heyen (2016), focus on asymmetry in terms of heterogeneous side-effects or different levels of uncertainty but maintain the assumption that countries' preferences regarding the desired climate outcome are perfectly aligned. Our work advances this literature by putting heterogeneous preferences over the global average temperature center-stage.…”

“…We believe that this source of asymmetry is crucial to capture the idea of excessive SG, frequently referred to as 'free-driving'. 2 Second, we extend Weitzman (2015) and Heyen (2016) in several ways, most importantly by adding the option of CG. The first paper that has put CG centerstage is Parker et al (2018).…”

“…In this context our paper makes three innovations. First, following Weitzman (2015) and Heyen (2016) we allow for the over-provision of a public good by modelling nonmonotonic benefit functions with heterogeneous optimal levels, a feature not present in other asymmetric public good settings; in contrast to Weitzman (2015), however, we include deployment costs, which gives rise to much richer findings, and situate this discussion in a standard public-good setting with a smooth benefit function. The second…”

Collective action and geoengineering

“…When two or more countries participate along with country i, the latter receives 10 = 20 − c i , which is greater than the previous example where positive benefits were smaller. The 11 Heyen (2015) treats the decision as a two-country, two-stage game, where the first stage is an R & D threshold game and the second stage is a deployment decision. I collapse the two stages into one, given symmetric countries.…”

Climate Engineering Economics

“…This paper develops a model of externalities and incentives that suggests that strong mechanisms, such as a supermajority voting rule, are necessary to reach the social optimum. The ideas put forward in Weitzman (2015) are further developed in Heyen (2015), which incorporates R&D incentives for SRM climate engineering. That paper adopts a game-theoretic approach to analyse how the balance of benefits and costs of climate engineering affects country-level incentives to engage in climate engineering R&D. Though the model yields significant behavior restrictions, conclusions are similar to those obtained in other economic models of R&D: there are significant incentives for free-ridership in technology development, but the threat of the free-driver effect causes excessive investment in the technology and an R&D race.…”