Emission Caps and Investment in Green Technologies
Abstract
Abstract We study the interaction between firms, which can invest in green technologies, and a government, which can impose emission caps but has limited commitment power. Investment in green technologies generates innovation spillovers, reducing the cost of further investments. Spillovers generate intertemporal strategic complementarities between firms and government, and equilibrium multiplicity. In a “green equilibrium”, firms, anticipating caps, invest in green technologies, which reduces the cost of further investment, making the government willing to cap emissions. In a “brown equilibrium”, firms, anticipating no caps, don’t invest, so green technologies remain costly and the government gives up on emission caps.
Fields of Study & Subjects
Climate Change Policy and Economics
Energy
Environment
and Transportation Policies
Environmental Impact and Sustainability
Publication details
- Journal / source
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Volume
- 39
- Issue
- 9
- Pages
- 2691–2728
- Publication date
- 25 June 2026
- Language
- EN