Abstract: A three-stage dynamic game model between government and firm to is constructed explore the firm's optimal R&D investment and the government optimal subsidy policy under different abatement technology modes. Moreover, a numerical method is used to analysis the factors that influence the firm's abatement and social performance. First, the R&D subsidy policy is always welfare-enhancing rather than the case of laissez-faire. Second, with the optimal subsidy policy, output, R&D investment, profit, and social welfare under the progress integrated abatement technology scenario become greater than those under end-of-pipe abatement technology for any value of the spillover. Social welfare under the progress integrated abatement technology scenario becomes greater than those under end-of-pipe abatement if the emission tax is sufficiently small. Moreover, output, R&D investment, profit, and social welfare under the progress integrated abatement technology scenario become greater than those under end-of-pipe abatement technology if the damage parameter is sufficiently small.

Key words: abatement R&D, spillover rate, subsidy policy, emission tax