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How Does Uncertainty Over Future Environmental Policy Affect Investment Decisions in Transition Economies?

Author

Listed:
  • Larson, B.A.

Abstract

A firm-level sequential investment model is developed to analyze how uncertainty about environmental policies in the future affects current investment decisions. Three specific policies are considered -- a pollution tax, an investment credit in the presence of liquidity constraints, and a pollution standard. Using a location-scale framework for expectations, the analysis shows how expectations about the future policy (i.e. the mean and variance of the future tax, credit, or standard) affect current investment decisions.

Suggested Citation

  • Larson, B.A., 1998. "How Does Uncertainty Over Future Environmental Policy Affect Investment Decisions in Transition Economies?," Papers 623, Harvard - Institute for International Development.
  • Handle: RePEc:fth:harvid:623
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    References listed on IDEAS

    as
    1. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, pages 1112-1125.
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    More about this item

    Keywords

    INVESTMENTS ; UNCERTAINTY ; ENVIRONMENT;

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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