Firm Dynamics with Tradable Output Permits

Quinn Weninger () and Richard Just

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: We study firm dynamics, firm value, equilibrium permit prices and market efficiency in a natural resource industry that is managed with tradable output permits. New firms must purchase capital and output permits before they enter. Active firms must consider the economic cost of capital and the cost of owning the permit when contemplating exit. The value of the capital used in the production process has nonseparable effects on permit prices and market efficiency. Costly investment reversibility (in the firm's productive capital) and uncertainty reduce permit prices and prolong the abandonment of unproductive capital. Policies to improve economic performance are identified.

Date: 2002-08-01
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Citations: View citations in EconPapers (18)

Published in American Journal of Agricultural Economics, August 2002, vol. 84 no. 3, pp. 572-584

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