Multiplicity of investment equilibria when pollution permits are not tradable

Larry Karp

No 7202, CUDARE Working Papers from University of California, Berkeley, Department of Agricultural and Resource Economics

Abstract: We study a model in which the level of environmental regulation depends on abatement costs, which depend on aggregate levels of investment in abatement capital. Firms are non-strategic. When emissions quotas are not tradable, there are multiple competitive equilibria to the investment problem. Allowing trade in permits leads to a unique socially optimal equilibrium. For a given distribution of investment, allowing trade in permits has an ambiguous effect on the optimal level of regulation. Previous results on coordination games with non-atomic agents are applied to the problem of environmental regulation with endogenous investment in abatement capital.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 25
Date: 2006
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Citations: View citations in EconPapers (1)

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Working Paper: Multiplicity of investment equilibria when pollution permits are not tradable (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ucbecw:7202

DOI: 10.22004/ag.econ.7202

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