Non-Cooperative and Cooperative Environmental R&D Under Environmental Corporate Social Responsibility in a Polluting Cournot Duopoly

We construct a managerial delegation model in a polluting Cournot duopoly wherein the owner uses strategic environmental corporate social responsibility (ECSR) while the manager undertakes environmental R&D (ER&D) investment non-cooperatively or cooperatively. We consider endogenous conflict of environmental concerns between the owner and the manager, and investigate the effects of cooperativeness in ECSR and ER&D on the firm’s profitability and social welfare. We find that coordination failure will critically affect industry emissions, profits and welfare. We also examine an optimal emission tax and show that coordination failure does not occur but it reduces welfare if environmental damage is relatively high. We conclude that pro-environmental government inducement to cooperative ER&D should be encouraged when the owner adopts cooperative ECSR even under the optimal tax