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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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Author Info
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)

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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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Publisher Info
Paper provided by Göteborg University, 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, Göteborg University Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Related research
Keywords: option value fuel price uncertainty investment decision pollution abatement panel data pulp and paper industry energy and heating sector

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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  1. Hammar, Henrik & Löfgren, Åsa, 2007. "Explaining adoption of end of pipe solutions and clean technologies," Working Paper 102, National Institute of Economic Research. [Downloadable!]
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