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Environmental Policy and Incentives to Invest in Advanced Abatement Technology if Arrival of Future Technology is Uncertain - Extended Version

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Author Info
von Döllen, Andreas
Requate, Till
Abstract

We study long-term incentives for polluting and regulated firms to invest in advanced abatement technologies, when some new technology is available but an even better technology will be expected in the future. Firms can invest only once. We find that depending on the adoption fixed costs all possible combinations of investment patters can occur in social optimum. Further we show that if the regulator anticipates the arrival of the new technology he can decentralize socially optimal allocation by charging Pigouvian tax or issuing tradable permits through announcing his policy and setting ex post optimal policy levels, after firms have invested. --

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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,04.

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Date of creation: 2007
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Handle: RePEc:zbw:cauewp:5532

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Web page: http://www.wiso.uni-kiel.de/econ/

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Related research
Keywords: Emission taxes; tradable permits; option value theory; uncertainty; Poisson distribution;

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Find related papers by JEL classification:
Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
L5 - Industrial Organization - - Regulation and Industrial Policy
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kennedy, Peter W. & Laplante, Benoit, 2000. "Environmental policy and time consistency - emissions taxes and emissions trading," Policy Research Working Paper Series 2351, The World Bank. [Downloadable!]
  2. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, vol. 47(1), pages 125-146, February. [Downloadable!] (restricted)
  3. Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July. [Downloadable!] (restricted)
  4. Till Requate & Wolfram Uunold, 2001. "On the Incentives Created by Policy Instruments to Adopt Advanced Abatement Technology if Firms are Asymmetric," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(4), pages 536-, December. [Downloadable!] (restricted)
  5. Till Requate, 1995. "Incentives to adopt new technologies under different pollution-control policies," International Tax and Public Finance, Springer, vol. 2(2), pages 295-317, August. [Downloadable!] (restricted)
  6. Parry, Ian, 1997. "Pollution Regulation and the Efficiency Gains from Technological Innovation," Discussion Papers dp-98-04, Resources For the Future. [Downloadable!]
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  7. Parry, Ian W. H., 1995. "Optimal pollution taxes and endogenous technological progress," Resource and Energy Economics, Elsevier, vol. 17(1), pages 69-85, May. [Downloadable!] (restricted)
  8. Juan-Pablo Montero, 2002. "Market Structure and Environmental Innovation," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 293-325, November. [Downloadable!]
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  9. Parry, Ian, 2001. "On the Implications of Technological Innovation for Environmental Policy," Discussion Papers dp-01-44, Resources For the Future. [Downloadable!]
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  10. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November. [Downloadable!] (restricted)
  11. Malueg, David A., 1989. "Emission credit trading and the incentive to adopt new pollution abatement technology," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 52-57, January. [Downloadable!] (restricted)
  12. Denicolo, Vincenzo, 1999. "Pollution-Reducing Innovations under Taxes or Permits," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 184-99, January.
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