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Optimal abatement investment and environmental policies under pollution uncertainty

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  • Saltari, Enrico
  • Travaglini, Giuseppe

Abstract

In this paper we present a continuous time model with reversible abatement capital in order to analyze the effects of environmental policies on the value of the firm and investment decisions. We show that the effects depend on what sort of future policy are implemented. We focus on investment effects of changes in corrective taxes to control the use of polluting inputs, and subsidies to promote abatement investment. We show that (1) while taxes have a depressive effect on capital accumulation, subsidies boost investment; (2) the impact of these policies on the value of the firm is ambiguous. This latter result has important empirical implications insofar as investment are based on the average value of the firm rather than the (unobservable) marginal value.

Suggested Citation

  • Saltari, Enrico & Travaglini, Giuseppe, 2011. "Optimal abatement investment and environmental policies under pollution uncertainty," MPRA Paper 35072, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:35072
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    References listed on IDEAS

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    Cited by:

    1. Giuseppe Travaglini, 2012. "Pollution control: targets and dynamics," Working Papers 1201, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2012.
    2. Saltari, Enrico & Travaglini, Giuseppe, 2016. "Pollution control under emission constraints: Switching between regimes," Energy Economics, Elsevier, vol. 53(C), pages 212-219.
    3. Travaglini, Giuseppe & Rugiero, Serena, 2011. "Efficienza energetica: misurazioni e impatti [Energy efficiency: measurement and impacts]," MPRA Paper 34520, University Library of Munich, Germany.
    4. Travaglini, Giuseppe & Saltari, Enrico, 2012. "A model of waste control and abatement capital: Permanent versus temporary environmental policies," MPRA Paper 36522, University Library of Munich, Germany.
    5. Davide Torre & Danilo Liuzzi & Simone Marsiglio, 2017. "Pollution Control Under Uncertainty and Sustainability Concern," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(4), pages 885-903, August.

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    More about this item

    Keywords

    Pollution uncertainty; externality; capital reversibility; environmental policy;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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