Environmental technology transfer in a Cournot duopoly: the case of fixed-fee licensing

This study considers a Cournot duopoly market in which a clean firm can transfer its less polluting technology to a dirty firm through a fixed-fee licensing contract. We analyze the impacts of emissions tax on the incentives of firms to transfer technology and the firms' total pollution level, and examine the properties of the optimal emissions tax policy. We show that a higher emissions tax weakens the incentives of technology transfer and that this can lead to a perverse increase in the total pollution level. We also find that as the degree of the initial technology gap between firms widens, the optimal emissions tax can (weakly) decrease, which is contrary to the result when a licensing option is not available.