Optimal abatement investment and environmental policies under pollution uncertainty

Enrico Saltari and Giuseppe Travaglini

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we present a continuous time model with reversible abatement capital in order to analyze the effects of environmental policies on the value of the firm and investment decisions. We show that the effects depend on what sort of future policy are implemented. We focus on investment effects of changes in corrective taxes to control the use of polluting inputs, and subsidies to promote abatement investment. We show that (1) while taxes have a depressive effect on capital accumulation, subsidies boost investment; (2) the impact of these policies on the value of the firm is ambiguous. This latter result has important empirical implications insofar as investment are based on the average value of the firm rather than the (unobservable) marginal value.

Keywords: Pollution uncertainty; externality; capital reversibility; environmental policy (search for similar items in EconPapers)
JEL-codes: E22 H23 L51 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:35072

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