Multiplicity of investment equilibria when pollution permits are not tradable

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.


Issue Date:
2006
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/7202
Total Pages:
25
JEL Codes:
C79; L51; Q58
Series Statement:
CUDARE Working Paper
1018




 Record created 2017-04-01, last modified 2017-08-23

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