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Multiplicity of investment equilibria when pollution permits are not tradable

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  • Karp, Larry S.

Abstract

We study a model in which the level of environmental regulation depends on abatement costs, which depend on aggregate levels of investment in abatement capital. Firms are non-strategic. When emissions quotas are not tradable, there are multiple competitive equilibria to the investment problem. Allowing trade in permits leads to a unique socially optimal equilibrium. For a given distribution of investment, allowing trade in permits has an ambiguous effect on the optimal level of regulation. Previous results on coordination games with non-atomic agents are applied to the problem of environmental regulation with endogenous investment in abatement capital.

Suggested Citation

  • Karp, Larry S., 2006. "Multiplicity of investment equilibria when pollution permits are not tradable," CUDARE Working Papers 7202, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:7202
    DOI: 10.22004/ag.econ.7202
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    References listed on IDEAS

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    Cited by:

    1. Heal, Geoffrey & Tarui, Nori, 2010. "Investment and emission control under technology and pollution externalities," Resource and Energy Economics, Elsevier, vol. 32(1), pages 1-14, January.

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