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Corporate environmental protection under uncertainty

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Abstract

Investment in pollution prevention technologies are often made under significant uncertainty about the future pay-off from the investments. However, as time passes some of the uncertainties may be resolved by new information, implying that the timing of investments becomes an important issue for the company. This paper focuses on uncertainty about a future environmental tax, and shows, within a two period model, that a specific tax uncertainty, standing alone, does not create any incentives for early investments. However, introducing a market share increase linked to the investment, the tax uncertainty may strengthen the incentives for early investments.

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  • Iulie Aslaksen & Terje Synnestvedt, 2003. "Corporate environmental protection under uncertainty," Discussion Papers 355, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:355
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp355.pdf
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    More about this item

    Keywords

    Uncertainty; Irreversibility; Environmental management; Tax uncertainty; Option value;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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