Prices Versus Quantities in a Vintage Capital Model

Thierry Bréchet, Tsvetomir Tsachev () and Vladimir M. Veliov ()
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Tsvetomir Tsachev: Bulgarian Academy of Sciences
Vladimir M. Veliov: Vienna University of Technology

A chapter in Dynamic Systems, Economic Growth, and the Environment, 2010, pp 141-159 from Springer

Abstract: Abstract The heterogeneity of the available physical capital with respect to productivity and emission intensity is an important factor for policy design, especially in the presence of emission restrictions. In a vintage capital model, reducing pollution requires to change the capital structure through investment in cleaner machines and to scrap the more polluting ones. In such a setting we show that quantity-based or a price-based regulation may yield contrasting outcomes. We also show that some failures in the permits market may undermine its efficiency and that imposing the emission cap over longer periods plays a regularizing role in the market, that is, ensures a positive market price of permits and decreases its volatility.

Keywords: Capital Structure; Physical Capital; Fredholm Integral Equation; Price Function; Emission Restriction (search for similar items in EconPapers)
Date: 2010
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Working Paper: Prices versus quantities in a vintage capital model (2009)
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DOI: 10.1007/978-3-642-02132-9_7

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