On the option to invest in pollution control under a regime of tradable emissions allowances
AbstractThis paper analyses the optimal decision of a firm faced with the option of retrofitting its plant to reduce pollution and thereby eliminate the need to purchase emissions allowances. The decision is treated as a real option with the price of pollution permits assumed to follow a known stochastic process. The model is formulated as a set of one-dimensional partial differential equations. At discrete points in time, the firm owner is assumed to make optimal decisions about the retrofitting. In addition, if mothballing is allowed, the owner can halt the installation, with the option of resuming at later date. Optimality conditions are imposed at each decision date, which link the set of one-dimensional partial differential equations. The model is used to calculate critical permit prices at which the firm should choose to retrofit.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by University of Waterloo, Department of Economics in its series Working Papers with number 02008.
Date of creation: Jan 2002
Date of revision: Jan 2002
Other versions of this item:
- Margaret Insley, 2003. "On the option to invest in pollution control under a regime of tradable emissions allowances," Canadian Journal of Economics, Canadian Economics Association, vol. 36(4), pages 860-883, November.
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Pat Gruber).
If references are entirely missing, you can add them using this form.