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

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  • Agliardi, Elettra
  • Sereno, Luigi

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.

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  • Agliardi, Elettra & Sereno, Luigi, 2011. "The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet–Brownian uncertainty," Economic Modelling, Elsevier, vol. 28(6), pages 2793-2802.
    • Handle: RePEc:eee:ecmode:v:28:y:2011:i:6:p:2793-2802
    DOI: 10.1016/j.econmod.2011.08.015
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    Cited by:

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    2. Agliardi, Elettra & Sereno, Luigi, 2012. "Environmental protection, public finance requirements and the timing of emission reductions," Environment and Development Economics, Cambridge University Press, vol. 17(6), pages 715-739, December.
    3. David Roubaud & Alain Lapied & Robert Kast, 2017. "Modelling under ambiguity with two correlated Choquet-Brownian motions," Economics Bulletin, AccessEcon, vol. 37(2), pages 1012-1020.
    4. Tarik Driouchi & Lenos Trigeorgis & Raymond H. Y. So, 2018. "Option implied ambiguity and its information content: Evidence from the subprime crisis," Annals of Operations Research, Springer, vol. 262(2), pages 463-491, March.
    5. Tang, Maogang & Li, Xiuzhen & Zhang, Yun & Wu, Yingtao & Wu, Baijun, 2020. "From command-and-control to market-based environmental policies: Optimal transition timing and China’s heterogeneous environmental effectiveness," Economic Modelling, Elsevier, vol. 90(C), pages 1-10.
    6. Rossella Agliardi, 2017. "Asymmetric Choquet random walks and ambiguity aversion or seeking," Theory and Decision, Springer, vol. 83(4), pages 591-602, December.
    7. Ping Shi & Bo Yan & Jun Zhao, 2020. "Appropriate timing for SMEs to introduce an Internet-based online channel under uncertain operating costs: a real options analysis," Electronic Commerce Research, Springer, vol. 20(4), pages 969-999, December.
    8. Kast, Robert & Lapied, André & Roubaud, David, 2014. "Modelling under ambiguity with dynamically consistent Choquet random walks and Choquet–Brownian motions," Economic Modelling, Elsevier, vol. 38(C), pages 495-503.
    9. E. Agliardi & L. Sereno, 2012. "On the optimal timing of switching from non-renewable to renewable resources: dirty vs clean energy sources and the relative efficiency of generators," Working Papers wp855, Dipartimento Scienze Economiche, Universita' di Bologna.
    10. Zeng, Bingxin & Zhu, Lei & Yao, Xing, 2020. "Policy choice for end-of-pipe abatement technology adoption under technological uncertainty," Economic Modelling, Elsevier, vol. 87(C), pages 121-130.
    11. Jia, Zhijie & Lin, Boqiang & Liu, Xiying, 2023. "Rethinking the equity and efficiency of carbon tax: A novel perspective," Applied Energy, Elsevier, vol. 346(C).
    12. Gao, Yongling & Driouchi, Tarik, 2018. "Accounting for ambiguity and trust in partial outsourcing: A behavioral real options perspective," Journal of Business Research, Elsevier, vol. 92(C), pages 93-104.
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    14. Driouchi, Tarik & Trigeorgis, Lenos & So, Raymond H.Y., 2020. "Individual antecedents of real options appraisal: The role of national culture and ambiguity," European Journal of Operational Research, Elsevier, vol. 286(3), pages 1018-1032.

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    More about this item

    Keywords

    Environmental taxation; Non-tradable quotas; Optimal implementation time; Choquet–Brownian uncertainty; Real options;
    All these keywords.

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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