Multiplicity of investment equilibria when pollution permits are not tradable
AbstractWe study a model in which the level of environmental regulation depends on abatement cost, which depend on aggregate levels of investment in abatement capital. Firms are non-strategic. When emissions quotas are not tradable, there are multiple competitive equilibria to the investment problem. Allowing trade in permits leads to a unique socially optimal equilibrium. For a given distribution of investment, allowing trade in permits has an ambiguous effect on the optimal level of regulation. Previous results on coordination games with non-atomic agents are applied to the problem of environmental regulation with endogenous investment in abatement capital.
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Bibliographic InfoPaper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt53s4p5wf.
Date of creation: 10 May 2006
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tradable permits; coordination games; multiple equilibria; global games; Social and Behavioral Sciences; Physical Sciences and Mathematics;
Other versions of this item:
- Karp, Larry, 2006. "Multiplicity of investment equilibria when pollution permits are not tradable," CUDARE Working Paper Series 1019, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
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