Abatement technology adoption under uncertainty

Aude Pommeret () and Katheline Schubert

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Abstract: New technology has been credited with solving environmental problems by mitigating the effects of pollutants. We construct a general equilibrium model in which abatement technology is a real option and pollution's (negative) amenity value alters both risk aversion and the intertemporal elasticity of substitution. We derive the tax scheme such that in a decentralized economy agents adopt the abatement technology at the time that is socially optimal. We show that the higher the greenness of preferences, the earlier the adoption and the higher the optimal tax rate. We also obtain that adoption is fostered by uncertainty if the effective intertemporal elasticity of substitution is large enough, but is not affected by uncertainty if this elasticity is low. Moreover, the optimal tax rate, which only exists if the effective intertemporal elasticity of substitution is high, is an increasing function of uncertainty.

Keywords: Abatement Technology; Uncertainty; Optimal Timing; Pollution Tax (search for similar items in EconPapers)
Date: 2009-09
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Citations: View citations in EconPapers (14)

Published in Macroeconomic Dynamics, 2009, 13 (4), pp.493-522. ⟨10.1017/S1365100509080201⟩

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Related works:
Journal Article: ABATEMENT TECHNOLOGY ADOPTION UNDER UNCERTAINTY (2009)
Working Paper: Abatement technology adoption under uncertainty (2009)
Working Paper: Abatement technology adoption under uncertainty (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00308797

DOI: 10.1017/S1365100509080201

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