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|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
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.:
- Ronald J. Shadbegian & Wayne B. Gray, 2003.
"Pollution Abatement Expenditures and Plant-Level Productivity: A Production Function Approach,"
NCEE Working Paper Series
200305, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2003.
- Shadbegian, Ronald J. & Gray, Wayne B., 2005. "Pollution abatement expenditures and plant-level productivity: A production function approach," Ecological Economics, Elsevier, vol. 54(2-3), pages 196-208, August.
- Ronald Shadbegian & Wayne Gray, 2003. "Pollution Abatement Expenditures and Plant-Level Productivity: A Production Function Approach," Working Papers 03-16, Center for Economic Studies, U.S. Census Bureau.
- Saltari, Enrico & Travaglini, Giuseppe, 2011. "The effects of environmental policies on the abatement investment decisions of a green firm," Resource and Energy Economics, Elsevier, vol. 33(3), pages 666-685, September.
- Smulders, Sjak & Gradus, Raymond, 1996.
"Pollution abatement and long-term growth,"
European Journal of Political Economy,
Elsevier, vol. 12(3), pages 505-532, November.
- Smulders, J.A. & Gradus, R.H.J.M., 1996. "Pollution abatement and long-term growth," Other publications TiSEM 1ed65010-f4ac-4a1f-84b6-4, Tilburg University, School of Economics and Management.
- Smulders, J.A. & Gradus, R.H.J.M., 1993. "Pollution abatement and long-term growth," Discussion Paper 1993-73, Tilburg University, Center for Economic Research.
- Fisher, Anthony C., 2000. "Investment under uncertainty and option value in environmental economics," Resource and Energy Economics, Elsevier, vol. 22(3), pages 197-204, July.
- Abel, Andrew B. & Eberly, Janice C., 1997. "An exact solution for the investment and value of a firm facing uncertainty, adjustment costs, and irreversibility," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 831-852, May.
- Ansar, Jasmin & Sparks, Roger, 2009. "The experience curve, option value, and the energy paradox," Energy Policy, Elsevier, vol. 37(3), pages 1012-1020, March.
- Giuseppe Travaglini, 2012. "Pollution control: targets and dynamics," Working Papers 1201, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2012.
- Lin, Tyrone T. & Ko, Chuan-Chuan & Yeh, Hsin-Ni, 2007. "Applying real options in investment decisions relating to environmental pollution," Energy Policy, Elsevier, vol. 35(4), pages 2426-2432, April.
- repec:ebl:ecbull:v:5:y:2008:i:6:p:1-9 is not listed on IDEAS
- Saltari, Enrico & Travaglini, Giuseppe, 2006. "The effects of future financing constraints on capital accumulation: Some new results on the constrained investment problem," Research in Economics, Elsevier, vol. 60(2), pages 85-96, June.
- 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.
- Pindyck, Robert S., 2000.
"Irreversibilities and the timing of environmental policy,"
Resource and Energy Economics,
Elsevier, vol. 22(3), pages 233-259, July.
- Pindyck, Robert S., 1998. "Irreversibilities and the timing of environmental policy," Working papers WP 4047-98., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Pindyck, Robert S., 2002. "Optimal timing problems in environmental economics," Journal of Economic Dynamics and Control, Elsevier, vol. 26(9-10), pages 1677-1697, August.
- Calcagnini, Giorgio & Giombini, Germana & Saltari, Enrico, 2009. "Financial and labor market imperfections and investment," Economics Letters, Elsevier, vol. 102(1), pages 22-26, January.
- Saltari Enrico & Travaglini Giuseppe, 2003. "How Do Future Constraints Affect Current Investment?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-21, June.
- Lin, Tyrone T. & Huang, Shio-Ling, 2010. "An entry and exit model on the energy-saving investment strategy with real options," Energy Policy, Elsevier, vol. 38(2), pages 794-802, February.
- Travaglini Giuseppe, 2008. "An exact consumption rule with liquidity constraints and stochastic income," Economics Bulletin, AccessEcon, vol. 5(6), pages 1-9.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:35072. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.