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September 10, 2025Journal of Public Economic Theory0 citationsOpen Access

Profiting From Regulation: The Effects of Emissions Standards on Abatement R&D

JHJohanna‐Sophia HardtLeibniz University Hannover HHHeidrun C. Hoppe-WewetzerLeibniz University Hannover FKFelix KlapperLeibniz University Hannover

Puntos clave

High emissions limits reduce firms' incentives to invest in abatement R&D, leading to greater output levels.
Subsidies for abatement R&D may not benefit firms, though they can enhance overall welfare under strict regulations.
The study applies a duopoly model to examine the effects of regulation on firm investment decisions.
Findings indicate that firms can coordinate profit-increasing output levels when faced with emissions standards.

Resumen

ABSTRACT This paper explores the impact of emissions standards on a firm's output and abatement R&D investment decisions in a duopoly model, extending the work of Amir et al. (2023). It is shown that high upper limits on total emissions remove the firms' incentives to invest in abatement R&D. This helps firms to coordinate on profit‐increasing output levels relative to unregulated markets. Moreover, subsidies for abatement R&D may hurt firms, but improve welfare when the regulation is strict enough.

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