Subsidizing energy saving capital accumulation: a real option approach

Bruno Cruz and Aude Pommeret ()

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: Some environmental policies, like tax credit, have tried to induce the acquisition of energy efficient units and the replacement of old energy inefficient vintages. However, they have faced the energy paradox that is a slow diffusion of new vintages. We develop a stochastic model of irreversible investment, in which firms also face embodied technological progress. We compare in a dynamic example a deterministic and a stochastic model with embodied technological progress. In the embodied case under uncertainty, the option to postpone replacement becomes very large, reducing drastically the effectiveness of a tax credit.

Keywords: embodied technological progress; tax credit; option value (search for similar items in EconPapers)
JEL-codes: D81 E22 E62 H22 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2003-12
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Option Valuation for Energy Issues, K. Ostertag, P. Llerena and A. Richard (eds), Stuttgart, IRB Verlag, December 2004, pp. 64-81

Downloads: (external link)
http://www.hec.unil.ch/deep/textes/03.14.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:03.14

Access Statistics for this paper

More papers in Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie Université de Lausanne, Faculté des HEC, Département d’économie, Internef, CH-1015 Lausanne. Contact information at EDIRC.
Bibliographic data for series maintained by Christina Seld ().