Double Free-Riding in Innovation and Abatement: A Rules Treaty Solution

Hans Gersbach*, Quirin Oberpriller, Martin Scheffel

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

3 Citations (Scopus)

Abstract

In addressing climate change, both abatement itself and the innovation of superior abatement technologies are exposed to free-riding. To examine this double free-riding problem, we develop a multi-country model with an international market for emission permits and licenses for abatement technologies. We show that the two problems are mutually reinforcing. To address the double free-riding problem we propose a rules treaty for innovation and abatement that consists of two rules, an allocation rule and a refunding rule. The allocation rule determines the share of issued emission permits that each country can directly allocate to its domestic firms, while the remainder is handed over to an international agency. The refunding rule determines how the agency’s revenues from selling these permits to firms are redistributed. A fraction is given to those countries that successfully develop superior abatement technologies provided they license the technology free of charge to all countries. The remaining revenues are redistributed to all countries. These rules can approximate globally optimal abatement and innovation levels.

Original languageEnglish
Peer-reviewed scientific journalEnvironmental and Resource Economics
Volume73
Issue number2
Pages (from-to)449-483
Number of pages35
ISSN0924-6460
DOIs
Publication statusPublished - 01.06.2019
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • Climate change
  • Global refunding scheme
  • International permit markets
  • Licensing
  • Patent
  • Rules treaty
  • Technological innovation

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