vestment Timing and Eco(nomic)-Efficiency of Climate-Friendly Investments in Supply Chains
AbstractEmission trading schemes like the European Union Emissions Trading System (EUETS) try to reconcile economic efficiency and ecological efficiency by creating financial incentives for companies to invest in climate-friendly innovations. Using real options methodology we demonstrate that under uncertainty economic and ecological efficiency are still mutually exclusive. This problem is even tightened if a climate-friendly project depends on investments of a whole supply chain. We model a sequential bargaining game in a supply chain where the parties negotiate about the implementation of a carbon dioxide (CO2) saving investment project. We show that the outcome of their bargaining is not economic efficient and even less ecological efficient. Furthermore, we can show that a supply chain is getting less economic efficient and less ecological efficient with every additional chain link. Finally, we give recommendations how managers or politicians could improve the situation and thereby increase the economic as well as the ecological efficiency of supply chains.
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Bibliographic InfoPaper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 120026.
Length: 29 pages
Date of creation: Oct 2012
Date of revision:
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Emission trading; Optimal investment timing; Real options; Game theory; Supply chain management; Eco-efficiency;
Find related papers by JEL classification:
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- M11 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Production Management
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-ENE-2012-11-24 (Energy Economics)
- NEP-ENV-2012-11-24 (Environmental Economics)
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