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Emerging environmental problems, irreversible remedies, and myopia in a two country setup

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  • Michel Moreaux
  • Pierre Lasserre
  • Marcel Boyer

Abstract

[fre] Avec la croissance apparaissent de nouveaux besoins de protection de l'environnement. Nous étudions les règles d'investissement optimales lorsque les décisions sont irréversibles et les dépenses indivisibles. Une attitude myope consistant à ne prendre en compte que les données immédiates du problème sans considération des investissements futurs ni de ceux d'autres juridictions simplifie énormément l'analyse et mène dans certains cas aux décisions optimales. Dans un modèle à deux pays où chaque pays bénéficie des investissements de l'autre, la chronologie d'investissement choisie lorsque les pays doivent investir tour à tour constitue également un équilibre lorsque l'ordre d'intervention est endogène. [eng] As development proceeds, the demand for environmental protection increases. We study optimal investment decision rules when protection investments are irreversible and indivisible. We show that myopia (focusing on one particular outlay without considering investments that are to come later in the sequence or are to be made by another jurisdiction) does not lead to errors in timing but greatly simplifies decision analysis. In a two country setup where each outlay benefits both countries, we also find that the equilibrium time sequence that arises when both countries must take turns to invest is also an equilibrium when the order is endogenous.

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Bibliographic Info

Article provided by Programme National Persée in its journal Revue d'économie industrielle.

Volume (Year): 83 (1998)
Issue (Month): 1 ()
Pages: 47-61

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Handle: RePEc:prs:recind:rei_0154-3229_1998_num_83_1_1698

Note: DOI:10.3406/rei.1998.1698
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Web page: http://www.persee.fr/web/revues/home/prescript/revue/rei

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References

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  1. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Coggins, Jay S. & Ramezani, Cyrus A., 1998. "An Arbitrage-Free Approach to Quasi-Option Value," Journal of Environmental Economics and Management, Elsevier, vol. 35(2), pages 103-125, March.
  3. Abel, Andrew B., 1952-, 1995. "Options, the value of capital, and investment," Working papers 3843-95., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  4. Leahy, John V, 1993. "Investment in Competitive Equilibrium: The Optimality of Myopic Behavior," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1105-33, November.
  5. repec:fth:geneec:94.09 is not listed on IDEAS
  6. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  7. Baranzini, A. & Chesney, M. & Morisset, J., 1994. "Uncertainty and Global Warming Policy," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 94.11, Institut d'Economie et Econométrie, Université de Genève.
  8. Boyer, M. & Lasserre, P. & Mariotti, T. & Moreaux, M., 1998. "Industry Development under Alternative Market Structures," Papers 98.497, Toulouse - GREMAQ.
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Cited by:
  1. Boyer, Marcel & Moreaux, Michel, 2000. "Flexibilité et stratégies d’impartition," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(2), pages 199-224, juin.
  2. Lazzarini, Sergio G. & Mesquita, Luiz F. & Cronin, Patrick, 2007. "Determinants of Firm Competitiveness in Latin American Emerging Economies: Evidence from Brazil’s Auto-parts Industry," Insper Working Papers wpe_82, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.

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