Environmental Innovation, War of Attrition and Investment Grants
The paper analyses the timing of spontaneous environmental innovation when second-mover advantages, arising from the expectation of declining investment costs, increase the option value of waiting created by investment irreversibility and uncertainty about private payoffs. We then focus on the design of public subsidies aimed at bridging the gap between the spontaneous time of technological change and the socially desirable one. Under network externalities and incomplete information about firms’ switching costs, auctioning investment grants appears to be a cost-effective way of accelerating pollution abatement, in that it allows targeting grants instead of subsidizing the entire industry indiscriminately.
|Date of creation:||Dec 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.feem.it/Email:
More information through EDIRC
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.:
- Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
- McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
- Cesare Dosi & Michèle Moretto, 1998. "Auctioning green investment grants as a means of accelerating environmental innovation," Revue d'Économie Industrielle, Programme National Persée, vol. 83(1), pages 99-110.
- Paul Klemperer & Jeremy Bulow, 1999.
"The Generalized War of Attrition,"
American Economic Review,
American Economic Association, vol. 89(1), pages 175-189, March.
- Bulow, Jeremy I. & Klemperer, Paul, 1997. "The Generalized War of Attrition," CEPR Discussion Papers 1564, C.E.P.R. Discussion Papers.
- Paul Klemperer & Jeremy Bulow, 1997. "The Generalized War of Attrition," Economics Series Working Papers 1998-W01, University of Oxford, Department of Economics.
- Paul Klemperer & Jeremy Bulow, 1999. "The Generalized War of Attrition," Game Theory and Information 9901004, EconWPA.
- Jeremy Bulow & Paul Klemperer, 1997. "The Generalized War of Attrition," NBER Working Papers 5872, National Bureau of Economic Research, Inc.
- Jeremy I. Bulow & Paul Klemperer, 1996. "The Generalized War of Attrition," Cowles Foundation Discussion Papers 1142, Cowles Foundation for Research in Economics, Yale University.
- Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
- Lambrecht, Bart & Perraudin, William, 2003. "Real options and preemption under incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 619-643, February.
- Joseph Farrell & Garth Saloner, 1985.
"Standardization, Compatibility, and Innovation,"
RAND Journal of Economics,
The RAND Corporation, vol. 16(1), pages 70-83, Spring.
- Bliss, Christopher & Nalebuff, Barry, 1984. "Dragon-slaying and ballroom dancing: The private supply of a public good," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 1-12, November.
- Cesare Dosi & Michele Moretto, 1997. "Pollution Accumulation and Firm Incentives to Accelerate Technological Change Under Uncertain Private Benefits," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(3), pages 285-300, October.
- Moretto, Michele, 2000. "Irreversible investment with uncertainty and strategic behavior," Economic Modelling, Elsevier, vol. 17(4), pages 589-617, December.
- Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
- Mauer, David C. & Ott, Steven H., 1995. "Investment under Uncertainty: The Case of Replacement Investment Decisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(04), pages 581-605, December.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
- Mason, Robin & Weeds, Helen, 2001. "Irreversible Investment with Strategic Interactions," CEPR Discussion Papers 3013, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2004.156. See general 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: (barbara racah)
If references are entirely missing, you can add them using this form.