The role of green reputation, carbon trading and government intervention in determining the green bond pricing: An externality perspective

Yuanfeng Hu and Yixiang Tian

International Review of Economics & Finance, 2024, vol. 89, issue PB, 46-62

Abstract: Green bonds, due to their inherent externalities, pose challenges in achieving equilibrium prices under optimal public resource allocation and social welfare without governmental intervention. While numerous studies have explored green bond pricing via government subsidies and other strategies, this paper diverges by targeting the equilibrium price of green bonds as the optimal public resource allocation, specifically from an externality's standpoint. We integrate factors such as the cap-and-trade system, carbon taxes, government subsidies, and green reputation into the fractional jump-diffusion model. This is further combined with real options theory and the fast Fourier transform method to derive the green bond pricing equation. Through optimization techniques, we delve into the influences of various factors and the interplay of different governmental strategies. Numerical findings suggest that, in an ideal scenario where the government grants adequate carbon allowances to green bond issuers, the carbon emission trading mechanism can facilitate the bond in achieving its ideal equilibrium price. Conversely, when the government is restricted by carbon constraints, preventing green bond issuers from acquiring ample carbon allowances, supplementary measures like government subsidies and carbon tax policies can complement the cap-and-trade system, ensuring green bonds attain their ideal equilibrium price. Furthermore, given the carbon emission reduction level of green projects, our model can determine the optimal government subsidy ratio and the ideal carbon tax price.

Keywords: Green bond pricing; Externality internalization; Cap-and-trade system; Government intervention (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056023003775
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pb:p:46-62

DOI: 10.1016/j.iref.2023.10.007

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().