The Korean Economic Review
Eco-Technology Licensing under Emission Tax: Royalty vs. Fixed-Fee
Seung-Leul Kim (Chonnam National University) and Sang-Ho Lee (Chonnam National University)Year 2014Vol. 30No. 2
This article considers the licensing strategies of eco-technology when an innovatorprovides pollution abatement goods to oligopolistic polluting firms that produceconsumption goods and emit environmental pollutants. In the presence of emission tax, twotypes of licensing contracts, royalty and fixed-fee, are examined to analyze marketequilibrium and to compare their welfare consequences. We show that an eco-innovatorprovides a non-exclusive license under a royalty contract while it might exclude pollutingfirms under the fixed-fee licensing contract. However, when mixed licensing contract whereroyalty and fixed-fee contracts are combined together is available, we show that ecoinnovatorprovides non-exclusive license. We also show that, compared to royalty licensing,exclusive fixed-fee contract will increase the welfare but its welfare effect depends on thelevel of emission tax. Finally, we derive the optimal emission tax and show that anappropriate emission tax combined with non-exclusion policy or profit-cap regulation canincrease the welfare.