We investigate the government's subsidy design problem for firms’ green technology development in an evolving industry and the subsidy's impact on environment and social welfare. Without subsidy, social welfare may either increase or decrease as more firms enter the industry over time, depending on the environmental benefit of the green technology. However, when the government provides a subsidy for green technology development, social welfare is always improved as the industry evolves. Furthermore, the optimal subsidy level is not affected by the firms’ technological efficiency. Interestingly, if the government only considers the environmental benefits of the technology and its costs, the subsidy policy may be detrimental to the environment, compared to the case where social welfare is considered for decision making. We derive further insights into the government's subsidy policy, and its role in firms’ technology development decisions, and social welfare under different industry environments.
Bibliographical noteFunding Information:
China uses various financial incentives for green technology development. For example, the central government has been providing subsidies for research and development for key clean technologies through the National Development and Reform Commission (NDRC) and the Ministry of Science & Technology (MOST). The amount of funds provided by MOST will be $3.4 million during the Five-Year plan ( NREL Report, 2004 ). In addition, MOST also subsidizes green technology R&D through two national High-Tech Research and Development programs: The 863 Program subsidizes for the commercial success of new technologies, and the 973 Program subsidizes the research of basic sciences ( NREL Report, 2004 ). The amount of funding planed for those programs during the Five-Year Plan is approximately $20–$30 million ( NREL Report, 2004 ).
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All Science Journal Classification (ASJC) codes
- Computer Science(all)
- Modelling and Simulation
- Management Science and Operations Research
- Information Systems and Management