Optimal abatement investment and environmental policies under pollution uncertainty
In this paper 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.
|Date of creation:||Mar 2011|
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1993-73, Tilburg University, Center for Economic Research.
- repec:ebl:ecbull:v:5:y:2008:i:6:p:1-9 is not listed on IDEAS
- Travaglini, Giuseppe, 2012. "Trade-off between labor productivity and capital accumulation in Italian energy sector," Journal of Policy Modeling, Elsevier, vol. 34(1), pages 35-48.
- Travaglini Giuseppe, 2008. "An exact consumption rule with liquidity constraints and stochastic income," Economics Bulletin, AccessEcon, vol. 5(6), pages 1-9.
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