Non-cooperative and cooperative environmental R&D risk choices under environmental corporate social responsibility guidelines

This study investigates environmental R&D (ER&D) risk choice by polluting duopoly firms under environmental corporate social responsibility (ECSR) guideline. We show that the ER&D risk level under cooperative ER&D is always higher than under non-cooperative ER&D, resulting in a higher expected consumer surplus and lower expected environmental damage. We also demonstrate that the firm's expected profit depends on the level of ECSR while a firm's expected value under cooperative ER&D is higher than that under non-cooperative ER&D, which creates a conflict of interest between the shareholders' expected private value and the stakeholders' expected public value. Our analysis suggests that the government should appropriately align ECSR guideline in accordance with emission tax rate, by considering firms' coordination of cooperative or non-cooperative ER&D activities on their risk choices.