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The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet-Brownian uncertainty

Elettra Agliardi and Luigi Sereno

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: The effects of two environmental policy options for the reduction of pollution emissions, i.e. taxes and non-tradable quotas, are analyzed. In contrast to the prior literature this work endogenously takes into account the level of emissions before and after the adoption of the new environmental policy. The level of emissions is determined by solving the firm's profit maximization problem under taxes and fixed quotas. We find that the optimal adoption threshold under taxes is always larger than the adoption threshold under fixed quota, even in a setting characterized by ecological uncertainty and ambiguity - in the form of Choquet-Brownian motions - on future costs and benefits over adopting environmental policies.

Keywords: Environmental taxation; Non-tradable quotas; Optimal implementation time; Choquet-Brownian uncertainty; Real options (search for similar items in EconPapers)
JEL-codes: Q28 Q48 L51 H23 (search for similar items in EconPapers)
Date: 2011-10-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
Note: ISSN 2039-1854
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Related works:
Journal Article: The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet–Brownian uncertainty (2011) Downloads
Working Paper: The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet-Brownian uncertainty (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pie:dsedps:2011/109

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