Carbon Tax and Investment in Low-Carbon Technology in a Model of Co-ordination Failure

We focus on the coordination failure among domestic firms in the investment of expensive low-carbon technology, which helps reduce the amount of carbon usage and pollution. In this model the firms are charged with a carbon tax only if the total stock of carbon emission in the environment exceeds a set carbon toleration level of the government. The carbon tax depends on the number of firms which have installed the low-carbon technology - the higher is the proportion of firms who do not invest in the technology, the higher will be the probability that firms being charged with carbon tax, and the higher will be the amount of tax.