Green Technology Development and Adoption: Competition, Regulation, and Uncertainty—A Global Game Approach

Abstract

When a government agency considers tightening a standard on a pollutant, the agency often takes into account the proportion of firms that are able to meet the new standard (what we refer to as the industry’s “voluntary adoption level”) because a higher proportion indicates a more feasible standard. We develop a novel model of regulation in which the probability of a stricter standard being enacted increases with an industry’s voluntary adoption level. In addition, in our model, the benefit of a new green technology is both uncertain and correlated across firms, and firms’ decisions exhibit both strategic substitutability (because the marketing benefit of a new green technology decreases as more firms adopt it) and complementarity (because the stricter standard is more likely to be enforced as more firms adopt it). To analyze such strategic interaction among firms’ decisions under correlated and uncertain payoffs, we use the global game framework recently developed in economics. Our analysis shows that regulation that considers an industry’s voluntary adoption level, compared with regulation that ignores it, can more effectively motivate development of a new green technology. Interestingly, uncertainty in the payoff can, in some situations, help promote development of a new green technology. Finally, we find that more aggressive regulation (a higher probability of enforcing a stricter standard for a given voluntary adoption level) encourages more firms to adopt a green technology once the technology becomes available but may discourage a firm from developing it in the first place when facing intense competition. Therefore, for an industry with intense competition, a government agency should exercise caution about being too aggressive with regulation, which could potentially stifle innovation. This paper was accepted by Vishal Gaur, operations management.

Cooperate or not with knowledge-advantaged ENGO: Motivating supplier environmental responsibility of competitive core enterprises

“…Most previous studies in this stream analyze one of the following competition forms of core enterprises' quantity competition, price competition, the greenness competition. By analyzing a bargaining model, Wang X. et al (2021) prove that the firm's bargaining power and the intensity of downstream competition paly a vital role in the influence of downstream competition on upstream innovation. Wang et al (2016) develop a global game model to investigate the interactions between the intensity of regulation and the green adaptation across competitive firms.…”

The optimal subsidy scheme and technology innovation strategy considering consumers' green premium

“…(2017) examined the impact of a subsidy policy on the firms' adoption of green emissions-reducing technology while ignoring investment risks and technology innovation techniques. Wang et al. (2021) developed a novel model of regulation in which the probability of a stricter standard being enacted increases with an industry's voluntary adoption level.…”

“…Bi et al (2017) examined the impact of a subsidy policy on the firms' adoption of green emissions-reducing technology while ignoring investment risks and technology innovation techniques. Wang et al (2021) developed a novel model of regulation in which the probability of a stricter standard being enacted increases with an industry's voluntary adoption level. There are also some studies that have explored the impact of green innovation on company performance from an empirical perspective, such as Chang (2019) and Brunel (2019).…”

A novel technology adoption in an OLG framework: examining the cross-generational effects of promotional policies

“…5 They conclude that the success of the FIT system depends on the careful choice of the tariff rate by the government: an aggressive tariff rate or a conservative tariff rate could both limit the adoption rates (via network externalities) of the green technology. More recently, (Wang et al 2020) analyse a global game into the adoption of green technology and show that the uncertainty in the technological returns arises out of a (i) strategic substitutability effect (arising from an increase in mass adoption) and a (ii) complementarity effect (arising out of the enforcement of strict government standards). They conclude that higher competition (the strategic substitutability effect) leads to lower incentive for the firms to develop the green technology.…”