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Environmental Policy Uncertainty and Marketable Permit Systems: The Dutch Phosphate Quota Program

Ada Wossink and Cornelis Gardebroek

American Journal of Agricultural Economics, 2006, vol. 88, issue 1, 16-27

Abstract: Tradable permits are generally considered as an efficient instrument to regulate pollution by individual producers. However, uncertainty about changes in or possible discontinuation of the program could make individual farmers reluctant to invest in tradable permits. This article uses the option approach to derive a theoretical model that shows the impact of policy uncertainty on investment in tradable quota. The empirical assessment provides weak evidence for the existence of option values due to policy uncertainty for phosphate quota in swine production in the Netherlands. Copyright 2006, Oxford University Press.

Date: 2006
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American Journal of Agricultural Economics is currently edited by Madhu Khanna, Brian E. Roe, James Vercammen and JunJie Wu

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