Subsidizing energy saving capital accumulation: a real option approach
Some environmental policies, like tax credit, have tried to induce the acquisition of energy efficient units and the replacement of old energy inefficient vintages. However, they have faced the energy paradox that is a slow diffusion of new vintages. We develop a stochastic model of irreversible investment, in which firms also face embodied technological progress. We compare in a dynamic example a deterministic and a stochastic model with embodied technological progress. In the embodied case under uncertainty, the option to postpone replacement becomes very large, reducing drastically the effectiveness of a tax credit.
|Date of creation:||Dec 2003|
|Publication status:||Published in Option Valuation for Energy Issues, K. Ostertag, P. Llerena and A. Richard (eds), Stuttgart, IRB Verlag, December 2004, pp. 64-81|
|Contact details of provider:|| Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne|
Phone: ++41 21 692.33.20
Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
More information through EDIRC
References listed on IDEAS
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.:
- Malcomson, James M., 1975. "Replacement and the rental value of capital equipment subject to obsolescence," Journal of Economic Theory, Elsevier, vol. 10(1), pages 24-41, February.
- Pindyck, Robert S, 1988.
"Irreversible Investment, Capacity Choice, and the Value of the Firm,"
American Economic Review,
American Economic Association, vol. 78(5), pages 969-985, December.
- Pindyck, Robert S., 1986. "Irreversible investment, capacity choice, and the value of the firm," Working papers 1802-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Robert S. Pindyck, 1986. "Irreversible Investment, Capacity Choice, and the Value of the Firm," NBER Working Papers 1980, National Bureau of Economic Research, Inc.
- Dubin, Jeffrey A. & Henson, Steven E., 1988. "The distributional effects of the Federal Energy Tax Act," Resources and Energy, Elsevier, vol. 10(3), pages 191-212, September.
- Kevin A. Hassett & Gilbert E. Metcalf, 1992. "Energy Tax Credits and Residential Conservation Investment," NBER Working Papers 4020, National Bureau of Economic Research, Inc.
- Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
- Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
- Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
- Aude Pommeret & Bruno Cruz, 2004. "Optimal Capital Accumulation and Embodied Technological Progress under Uncertainty," Econometric Society 2004 Latin American Meetings 33, Econometric Society.
- Raouf BOUCEKKINE & Aude POMMERET, 2000. "Optimal Capital Accumulation, Energy Cost and the Nature of Technological Progress," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2001023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:lau:crdeep:03.14. 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: (Gaëlle Sarda)
If references are entirely missing, you can add them using this form.