Bankable emission permits under uncertainty and optimal risk-management rules
AbstractThis article proposes a theory of banking of emission permits under conditions of regulatory uncertainty. Based on a two-period partial equilibrium framework, we examine the effects of increasing risk-in the sense of a mean preserving spread-regarding a future permit allocation at the firm level. We also examine the role of an agency to pool risks by re-allocating permits for a group of firms. Our results are twofold. First, an increase in risk may lead to changes in a firm's banking strategy, depending on the third partial derivative of its production function with respect to pollution. Second, we define an optimal risk-sharing rule between agents to respond to political decision changes. Our results overall suggest that the bankability of permits may be used as a risk-management tool.
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Bibliographic InfoArticle provided by Elsevier in its journal Research in Economics.
Volume (Year): 65 (2011)
Issue (Month): 4 (December)
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Web page: http://www.elsevier.com/locate/inca/622941
Emission permits Banking Uncertainty Policy risk;
Other versions of this item:
- Chevallier, Julien & Etner, Johanna & Jouvet, Pierre-André, 2011. "Bankable emission permits under uncertainty and optimal risk-management rules," Economics Papers from University Paris Dauphine 123456789/5385, Paris Dauphine University.
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
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