| Journal of Environmental Economics and Management
Strategic Responses to Automobile Emissions Control: A Game-Theoretic Analysis
This paper examines the dynamics of standard-setting regulation under technological uncertainty and asymmetric information about technological capability. A two-period model which allows fully strategic action is developed and applied to the regulation of automobile emissions, a situation in which standards have been used to "force" innovation. It is found that the initial level of R&D activity caused by regulation increases with the intrinsic technical capability of industry. This result does not depend on marginal productivities of research that favor high-capability types and implies that a poor-capability industry will not attempt to compensate for its inability to innovate with increased research activity. It is also found that the regulator's ability to induce investment is greater when R&D is likely to be unsuccessful.
Pollution and Pollutants;
Research and Development;