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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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1935-1682
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Environmental Policy and Uncertain Arrival of Future Abatement Technology

Andreas von Döllen
  • 1Wingas Corporation,
/ Till Requate
  • 2Kiel University,
Published Online: 2008-08-11 | DOI: https://doi.org/10.2202/1935-1682.1951

Abstract

We study long-term incentives for regulated polluting firms to invest in advanced abatement technologies when some new technology is available but even better technology is expected for the future. Firms can invest only once. We find that, depending on the cost of adoption, all possible investment patterns can occur in social optimum. Further, a regulator who anticipates the arrival of the new technology can decentralize the socially optimal allocations by announcing either a Pigouvian tax or tradable permits and by setting ex post optimal policy levels after firms have invested.

This article offers supplementary material which is provided at the end of the article.

Keywords: emission taxes; tradable permits; option value theory; uncertainty; Poisson distribution


Published Online: 2008-08-11


Citation Information: The B.E. Journal of Economic Analysis & Policy. Volume 8, Issue 1, ISSN (Online) 1935-1682, DOI: https://doi.org/10.2202/1935-1682.1951, August 2008

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