Environmental R&D cooperation and emission tax policy timings under relative profit performance competition

This paper examines how relative-profit-performance (RPP) competition and emission-tax timing shape environmental R&D (ER&D) cooperation in a Cournot duopoly with knowledge spillovers. We compare non-cooperative and cooperative ER&D under committed and time-consistent emission taxes. Under committed tax, cooperation always raises ER&D investment and social welfare, although firms' private preference depends on competitive intensity and spillovers. Under time-consistent tax, cooperation serves as a credible commitment device and is always privately preferred. However, intense RPP competition combined with weak spillovers induces firms to use individual investment strategically to influence the subsequent tax, causing non-cooperative investment to exceed cooperative investment. Cooperation under time-consistent tax is therefore not necessarily welfare improving. These results reveal a policy-timing trade-off: the ER&D regime preferred by firms need not maximize welfare, and the benefits of cooperation depend jointly on competitive aggressiveness, knowledge spillovers, and regulatory commitment. Effective environmental policy should therefore be coordinated with the treatment of ER&D collaboration under antitrust policy.