Environmental Policy Uncertainty and Marketable Permit Systems: The Dutch Phosphate Quota Program |
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| Authors: | Ada Wossink Cornelis Gardebroek |
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| Affiliation: | Ada Wossink is professor, Department of Agricultural &Resource Economics, North Carolina State University and Cornelis Gardebroek is assistant professor, Agricultural Economics and Rural Policy Group, Wageningen University, The Netherlands. |
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| Abstract: | ![]()
Tradable permits are generally considered as an efficient instrument to regulate pollution by individual producers. However, uncertainty about changes in or possible discontinuation of the program could make individual farmers reluctant to invest in tradable permits. This article uses the option approach to derive a theoretical model that shows the impact of policy uncertainty on investment in tradable quota. The empirical assessment provides weak evidence for the existence of option values due to policy uncertainty for phosphate quota in swine production in the Netherlands. |
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| Keywords: | jump-diffusion policy risk real options switching regression model tradable permits transaction cost |
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