- Applied Theory
Optimal Design of Climate Disclosure Policies: Transparency versus Externality, 2024
Does a more transparent climate disclosure policy induce lower emissions? This paper analyzes the welfare consequences of transparency in corporate disclosure regulation in an environment in which regulatory disclosure constitutes the sole avenue for the verification of a firm’s emissions. On the one hand, a potential trade-off between disclosure transparency and externality suggests a non-monotonic relationship between them. On the other hand, increased transparency never makes the firm worse off. Consequently, mandating full disclosure is no different from maximizing the firm’s private benefit while disregarding the ensuing externality. When the regulator is symmetrically informed about the firm’s energy efficiency level, transparency beyond binary disclosure does not lead to welfare improvements. In the presence of information asymmetry, the welfare-maximizing disclosure takes a threshold form: all emissions above the threshold are pooled together, whereas all emissions below are fully disclosed.
Strategic Exploration for Innovation, 2021
This paper introduces a framework to study innovation in a strategic setting, in which innovators allocate their resources between exploration and exploitation in continuous time. Exploration creates public knowledge, while exploitation delivers private benefits. Through the analysis of a class of Markov equilibria, we demonstrate that knowledge spillovers accelerate knowledge creation and expedite its availability, thereby encouraging innovators to increase exploration. The prospect of the ensuing superior long-term innovations further motivates exploration, giving rise to a positive feedback loop. This novel feedback loop can substantially mitigate the free-riding problem arising from knowledge spillovers.