Abstract

This article addresses a case where an innovation leads to a productivity gain but generates some negative externalities. Two possible regulations can be implemented to control for these externalities : a market approval or a tax on the use of this innovation. An industrial organization model is used to compare the impact of these two instruments on the incentive of the monopoly to invest in research. We first show that, compared to the tax, a market approval leads to more performant and less toxic products and to higher surplus. Second, in a context where several different products can be supplied, we show that the best market approval defined by the regulator can lead to more concentrated supply and a limited range of products.This paper refers more particularly to the case of the pesticides for which these two types of regulation are currently implemented. The result from this paper are consistent with the main stylized fact of this sector.

Practical information