Thursday, 17 March 2011: 10:20
This paper focuses on environmental policies aimed at rising investment in pollution abatement capital. We assume that ecological uncertainty, i.e. uncertainty over the dynamics of pollution, affects firm investment decisions. Closed-form solutions for the investment and value of a green firm are derived. The effects of environmental policies are investigated considering taxes on polluting inputs and subsidies to reduce the cost of abatement capital. Environmental policies promoted to enforce abatement capital may generate the unexpected result of reducing the abatement investment rate.