Corporate environmental protection under uncertainty

Iulie Aslaksen and Terje Synnestvedt ()
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Terje Synnestvedt: Statistics Norway, https://www.ssb.no/en/forskning/ansatte

Discussion Papers from Statistics Norway, Research Department

Abstract: Investment in pollution prevention technologies are often made under significant uncertainty about the future pay-off from the investments. However, as time passes some of the uncertainties may be resolved by new information, implying that the timing of investments becomes an important issue for the company. This paper focuses on uncertainty about a future environmental tax, and shows, within a two period model, that a specific tax uncertainty, standing alone, does not create any incentives for early investments. However, introducing a market share increase linked to the investment, the tax uncertainty may strengthen the incentives for early investments.

Keywords: Uncertainty; Irreversibility; Environmental management; Tax uncertainty; Option value (search for similar items in EconPapers)
JEL-codes: D81 H25 Q20 (search for similar items in EconPapers)
Date: 2003-09
New Economics Papers: this item is included in nep-pbe
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