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Environmental Policy and Incentives to Invest in Advanced Abatement Technology if Arrival of Future Technology is Uncertain - Extended Version

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  • von Döllen, Andreas
  • Requate, Till

Abstract

We study long-term incentives for polluting and regulated firms to invest in advanced abatement technologies, when some new technology is available but an even better technology will be expected in the future. Firms can invest only once. We find that depending on the adoption fixed costs all possible combinations of investment patters can occur in social optimum. Further we show that if the regulator anticipates the arrival of the new technology he can decentralize socially optimal allocation by charging Pigouvian tax or issuing tradable permits through announcing his policy and setting ex post optimal policy levels, after firms have invested.

Suggested Citation

  • von Döllen, Andreas & Requate, Till, 2007. "Environmental Policy and Incentives to Invest in Advanced Abatement Technology if Arrival of Future Technology is Uncertain - Extended Version," Economics Working Papers 2007-04, Christian-Albrechts-University of Kiel, Department of Economics.
    • Handle: RePEc:zbw:cauewp:5532
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Emission taxes; tradable permits; option value theory; uncertainty; Poisson distribution;
    All these keywords.

    JEL classification:

    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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