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IRREVERSIBLE ABATEMENT INVESTMENT UNDER COST UNCERTAINTIES: TRADABLE EMISSION PERMITS AND EMISSIONS CHARGES

Jinhua Zhao ()

No 21816, 2000 Annual meeting, July 30-August 2, Tampa, FL from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: A major concern with TEPs is that stochastic permit prices may discourage abatement investment relative to other policies such as a fixed emissions charge. However, the price uncertainty is fundamentally caused by abatement cost uncertainties, which affect investment under both policies. We develop a rational expectations general equilibrium model of permit trading to show how uncertainty reduces investment. Differences between the two policies can be decomposed into a general equilibrium effect and a price-vs-quantity effect. Except for the curvature of the payoff functions, uncertainties reduce both effects: tradable permits in fact helps maintain firms' investment incentives under uncertainty.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 22
Date: 2000
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http://ageconsearch.umn.edu/record/21816/files/sp00zh01.pdf (application/pdf)

Related works:
Journal Article: Irreversible abatement investment under cost uncertainties: tradable emission permits and emissions charges (2003) Downloads
Working Paper: Irreversible Abatement Investment Under Cost Uncertainties: Tradable Emission Permits and Emissions Charges (2003)
Working Paper: Irreversible Abatement Investment Under Cost Uncertainties: Tradable Emission Permits and Emissions Charges (2000) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea00:21816

DOI: 10.22004/ag.econ.21816

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