How Does Uncertainty Over Future Environmental Policy Affect Investment Decisions in Transition Economies?

B.A. Larson

Working Papers from Harvard - Institute for International Development

Abstract: A firm-level sequential investment model is developed to analyze how uncertainty about environmental policies in the future affects current investment decisions. Three specific policies are considered -- a pollution tax, an investment credit in the presence of liquidity constraints, and a pollution standard. Using a location-scale framework for expectations, the analysis shows how expectations about the future policy (i.e. the mean and variance of the future tax, credit, or standard) affect current investment decisions.

Keywords: INVESTMENTS; UNCERTAINTY; ENVIRONMENT (search for similar items in EconPapers)
JEL-codes: D81 D92 E22 Q2 Q28 (search for similar items in EconPapers)
Pages: 41 pages
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:fth:harvid:623

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