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The effects of environmental policies on the abatement investment decisions of a green firm

  • Saltari, Enrico
  • Travaglini, Giuseppe

Abstract This paper focuses on environmental policies aimed at rising investment in pollution abatement capital. We assume that ecological uncertainty, i.e., uncertainty over the dynamics of pollution, affects firm investment decisions. Capital irreversibility is not postulated but endogenized using a quadratic adjustment cost function. Using this framework, we study the effects of environmental policies considering taxes on polluting inputs and subsidies to reduce the cost of abatement capital. Environmental policies promoted to enforce abatement capital may generate the unexpected result of reducing the abatement investment rate.

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Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 3 (September)
Pages: 666-685

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Handle: RePEc:eee:resene:v:33:y:2011:i:3:p:666-685
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505569

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