摘要：The authors develop a three stage game model composed of a regulator and two firms. These firms compete on the same market where they offer the same homogeneous good and can invest in R&D to lower their emission/output ratio. By means of a tax per-unit of pollution and a subsidy per-unit of R&D level, the regulator can induce the first-best outcome. Interestingly, the investment in R&D is actually taxed when the marginal damage cost of pollution is high enough, because firms are tempted to overinvest in research.
