Advanced Search
MyIDEAS: Login

Price Volatility and Risk Exposure: On the Interaction of Quota and Product Markets

Contents:

Author Info

  • Fridrik Baldursson

    ()

  • Nils-Henrik Fehr

Abstract

We consider an industry with firms that produce a final good emitting pollution to different degree as a side effect. Pollution is regulated by a tradable quota system where some quotas may have been allocated at the outset, i.e. before the quota market is opened. We study how volatility in quota price affects firm behaviour, taking into account the impact of quota price on final-good price. The impact on the individual firm differs depending on how polluting it is - whether it is `clean' or `dirty'- and whether it has been allocated quotas at the outset. In the absence of long-term or forward contracting, the optimal initial quota allocation turns out to resemble a grandfathering regime: clean firms are allocated no quotas - dirty firms are allocated quotas for a part of their emissions.With forward contracts and in the absence of wealth effects initial quota allocation has no effect on firm behaviour.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1007/s10640-011-9525-3
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 52 (2012)
Issue (Month): 2 (June)
Pages: 213-233

as in new window
Handle: RePEc:kap:enreec:v:52:y:2012:i:2:p:213-233

Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: Regulation; Effluent taxes; Tradable quotas; Uncertainty; Risk aversion; Environmental management; D81; D9; H23; L51; Q28; Q38;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Zhao, Jinhua, 2000. "Irreversible Abatement Investment Under Cost Uncertainties: Tradable Emission Permits And Emissions Charges," 2000 Annual meeting, July 30-August 2, Tampa, FL 21816, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
  3. Newbery, D., 2006. "Climate change policy and its effect on market power in the gas market," Cambridge Working Papers in Economics 0606, Faculty of Economics, University of Cambridge.
  4. Anastasios Xepapadeas, 2001. "Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions under Uncertainty and Irreversibility," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 281-308 National Bureau of Economic Research, Inc.
  5. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
  6. Stavins, Robert N., 1996. "Correlated Uncertainty and Policy Instrument Choice," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 218-232, March.
  7. John C. V. Pezzey, 2002. "EmissionTaxes and Tradable Permits: A Comparison of views on Long Run Efficiency," Economics and Environment Network Working Papers 0210, Australian National University, Economics and Environment Network.
  8. Viaene, Jean-Marie & Zilcha, Itzhak, 1998. "The Behavior of Competitive Exporting Firms under Multiple Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 591-609, August.
  9. Baron, David P, 1970. "Price Uncertainty, Utility, and Industry Equilibrium in Pure Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 463-80, October.
  10. Adar, Zvi & Griffin, James M., 1976. "Uncertainty and the choice of pollution control instruments," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 178-188, October.
  11. Yohe, Gary Wynn, 1977. "Comparisons of price and quantity controls: A survey," Journal of Comparative Economics, Elsevier, vol. 1(3), pages 213-233, September.
  12. Fishelson, Gideon, 1976. "Emission control policies under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 189-197, October.
  13. Chao, Hung-Po & Wilson, Robert, 1993. "Option Value of Emission Allowances," Journal of Regulatory Economics, Springer, vol. 5(3), pages 233-49, September.
  14. Nickell, Stephen J, 1977. "The Influence of Uncertainty on Investment," Economic Journal, Royal Economic Society, vol. 87(345), pages 47-70, March.
  15. Richard Green, 2007. "Carbon Tax or Carbon Permits: The Impact on Generators' Risks," Discussion Papers 07-02, Department of Economics, University of Birmingham.
  16. Pindyck, Robert S, 1982. "Adjustment Costs, Uncertainty, and the Behavior of the Firm," American Economic Review, American Economic Association, vol. 72(3), pages 415-27, June.
  17. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
  18. Montero, Juan-Pablo, 2002. "Prices versus quantities with incomplete enforcement," Journal of Public Economics, Elsevier, vol. 85(3), pages 435-454, September.
  19. Batra, Raveendra N & Ullah, Aman, 1974. "Competitive Firm and the Theory of Input Demand under Price Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 537-48, May/June.
  20. Baldursson, Fridrik M & von der Fehr, N.-H.M.Nils-Henrik M, 2004. "Price volatility and risk exposure: on market-based environmental policy instruments," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 682-704, July.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:kap:enreec:v:52:y:2012:i:2:p:213-233. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.