Optimal Subsidies for Abatement R&D Organizations in Duopoly with Emissions Tax: A Game-Theoretic Analysis

Abstract

This paper presents a game-theoretic analysis to determine optimal subsidies for abatement Research and Development (R&D) organizations operating in a duopoly market subject to emissions tax. In the context of environmental regulation and technological innovation, governments often incentivize R&D efforts aimed at developing cleaner and more efficient abatement technologies to mitigate pollution. However, in a competitive market with multiple R&D firms, the determination of subsidy levels becomes crucial to ensure both environmental objectives and economic efficiency. Through a dynamic game model, this research explores the strategic interactions between R&D organizations in terms of their investment decisions and pricing strategies, considering the impact of government subsidies and emissions taxes on firm behavior and market outcomes. The analysis aims to identify subsidy levels that maximize social welfare while ensuring fair competition and technological progress. Furthermore, the study investigates the implications of different subsidy schemes for the distribution of benefits and the overall effectiveness of environmental policies in achieving emission reduction targets. By providing insights into the optimal design of subsidies for abatement R&D organizations within a duopoly framework, this research contributes to the development of policy guidelines for promoting sustainable innovation and addressing environmental challenges.