Environmental R&D Tournaments

ABSTRACT We investigate the impacts of investment in environmental (or green) research and development (R&D) in the context of a contest with endogenous rewards, known as R&D tournaments. The firm that “wins“ the tournament is the one which develops the most effective technology at reducing emissions and gains sole property rights in using that technology. This reduces the burden of the emission fee which the winning firm faces, while also lowering the fee all firms face. We find that the tournament induces firms to invest more than in a non‐tournament R&D model except at high levels of green investment cost.