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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan


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1935-1704
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Managerial Delegation Contracts, “Green” R&D and Emissions Taxation

Joanna Poyago-Theotoky
  • Department of Economics and Finance, La Trobe University, Melbourne, 3086 Australia
  • Rimini Centre for Economic Analysis (RCEA), Rimini, Italy
  • International Centre for Research on the Environment and the Economy (ICRE8), Athens, Greece
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/ Soo Keong Yong
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  • Xi'an Jiaotong-Liverpool University, International Business School Suzhou, Business Building, South Campus, 8 Chongwen Road, Suzhou Dushu Lake Science and Education Innovation District, Suzhou Industrial Park Suzhou, China
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Published Online: 2018-12-11 | DOI: https://doi.org/10.1515/bejte-2017-0128

Abstract

We introduce an explicit environmental incentive into a managerial compensation contract in the context of a Cournot duopoly with pollution externalities under an emissions tax regime. We show that, depending on the effectiveness of “green” R&D, compared to a standard sales compensation contract, the explicit environmental focused contract results in more abatement. As a consequence, the regulator sets a lower emissions tax, and social welfare is higher. Moreover, in general, firm owners earn higher profits when adopting the environmental delegation contract.

Keywords: “green” R&D; abatement; emissions tax; managerial delegation; cournot duopoly

JEL Classification: H23; L1; M5; Q58

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About the article

Published Online: 2018-12-11


Citation Information: The B.E. Journal of Theoretical Economics, Volume 19, Issue 2, 20170128, ISSN (Online) 1935-1704, DOI: https://doi.org/10.1515/bejte-2017-0128.

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