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Present-biased preferences and corporate carbon emission management

Author

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  • Xia, Xin
  • Gan, Liu

Abstract

This paper develops a structural model to investigate the optimal dynamic management of corporate carbon emissions within carbon trading systems when entrepreneurs display present-biased preferences. Entrepreneurs pursue optimal carbon emission management by adjusting production scale, abatement, green innovation, and carbon credit trading. We show that, compared to their fully rational counterparts, present-biased entrepreneurs either expand or reduce the firm’s optimal production scale, depending on the carbon credit balance. Moreover, entrepreneurs with a stronger present-bias preference strategically accelerate carbon credit sales and tend to favor abatement over green innovation for emission reduction. Reputational benefits from green innovation investment and time-decaying innovation subsidies can mitigate the adverse impact of entrepreneurs’ present bias on the firm’s innovation-driven sustainability.

Suggested Citation

  • Xia, Xin & Gan, Liu, 2026. "Present-biased preferences and corporate carbon emission management," Economics Letters, Elsevier, vol. 260(C).
    • Handle: RePEc:eee:ecolet:v:260:y:2026:i:c:s0165176526000194
    DOI: 10.1016/j.econlet.2026.112825
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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