Investments in green technology
This project consists of two papers that study investments in green technology in dynamic games.
In the first paper, we study a model where countries over time invest in technologies as well as pollute. While Folk theorems point out that the first-best is possible when countries are sufficiently patient, we characterize the second-best subgame-perfect equilibrium when the first-best is out of reach. In particular, when countries are tempted to pollute rather than comply, then it is necessary to require over-investments in "green technologies" that are strategic substitutes to polluting, and under-investments in "brown technologies" (complements to polluting) and adaptation technologies. It is in particular small or reluctant participants who will be required to strategically invest in this way. With imperfect monitoring, such strategic investments reduce the need for a costly and long punishment phase.
The second paper studies a dynamic game where countries can noncooperatively invest in green technology as well as pollute. We study agreements on carbon taxes and compare them to international agreements on emission quotas. The two instruments are different because they motivate different amounts of investments, and this means that quotas may be better than agreements on carbon taxes, even though the reverse would hold in a standard model without many periods or without such investments.