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Chapter 20 Optimal Abatement Investment and Environmental Policies Under Pollution Uncertainty

In: Economic Growth and Development

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  • Enrico Saltari
  • Giuseppe Travaglini

Abstract

In this chapter we present a continuous time model with reversible abatement capital in order to analyze the effects of environmental policies on the value of the firm and investment decisions. We show that the effects depend on what sort of future policy are implemented. We focus on investment effects of changes in corrective taxes to control the use of polluting inputs, and subsidies to promote abatement investment. We show that (1) while taxes have a depressive effect on capital accumulation, subsidies boost investment; (2) the impact of these policies on the value of the firm is ambiguous. This latter result has important empirical implications insofar as investment are based on the average value of the firm rather than the (unobservable) marginal value.

Suggested Citation

  • Enrico Saltari & Giuseppe Travaglini, 2011. "Chapter 20 Optimal Abatement Investment and Environmental Policies Under Pollution Uncertainty," Frontiers of Economics and Globalization, in: Economic Growth and Development, pages 527-541, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:fegzzz:s1574-8715(2011)0000011025
    DOI: 10.1108/S1574-8715(2011)0000011025
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    Keywords

    Pollution uncertainty;

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