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Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments - An Application to the Swedish Pulp and Paper Industry and Energy Sector

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  • Löfgren, Åsa

    ()
    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Millock, Katrin

    ()
    (Université Paris 1 Panthéon-Sorbonne, CNRS, Centre d’Economie de la Sorbonne)

  • Nauges, Céline

    ()
    (UMR LERNA-Université de Toulouse, Manufacture des Tabacs)

Abstract

We propose a method for estimating hurdle rates for firms’ investments in pollution abatement technology, using ex post data. The method is based on a structural option value model where the future price of polluting fuel is the major source of uncertainty facing the firm. The econometric procedure is illustrated using a panel of firms from the Swedish pulp and paper industry, and the energy and heating sector from 2000 to 2003. The results indicate a hurdle rate of investment of almost 3 in the pulp and paper industry and almost 4 in the energy and heating sector.

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File URL: http://hdl.handle.net/2077/3166
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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 249.

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Length: 30 pages
Date of creation: 21 Mar 2007
Date of revision:
Handle: RePEc:hhs:gunwpe:0249

Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Keywords: option value; fuel price uncertainty; investment decision; pollution abatement; panel data pulp and paper industry; energy and heating sector;

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Cited by:
  1. Hammar, Henrik & Löfgren, Åsa, 2007. "Explaining adoption of end of pipe solutions and clean technologies," Working Paper 102, National Institute of Economic Research.

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