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Contribution to Book
Optimal Abatement Investment and Environmental Policies Under Pollution Uncertainty
Frontiers of economics and Globalization. Economic Growth and Development (2011)
  • Giuseppe Travaglini, Prof.
  • Enrico Saltari, Prof.
Abstract

In this chapter 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; externalities; irreversibility; uncertainty
Publication Date
2011
Editor
O. De La Grandville
Publisher
Emerald
ISBN
9781780523965
Citation Information
Giuseppe Travaglini and Enrico Saltari. "Optimal Abatement Investment and Environmental Policies Under Pollution Uncertainty" Frontiers of economics and Globalization. Economic Growth and Development Vol. 11 (2011)
Available at: http://works.bepress.com/giuseppe_travaglini/34/