Stock externalities and the diffusion of less polluting capital: an option approach |
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| Institution: | 1. Department of Economics, University of Rochester, Rochester, NY 14627, United States;2. NBER, United States;3. Institute for Economic Theory 1, Humboldt University Berlin, Spandauer Str. 1, 10178 Berlin, Germany;1. Alberta School of Business, University of Alberta, 3-23 Business Building, Edmonton, Alberta, Canada T6G 2R6;2. Norwegian School of Economics, Department of Economics, Helleveien 30, 5045 Bergen, Norway;1. Alabama Cooperative Fish and Wildlife Research Unit, School of Fisheries, Aquaculture and Aquatic Sciences, Auburn University, 203 Swingle Hall, Auburn, AL 36849, USA;2. Institute of Tropical Biology, Vietnam Academy of Science and Technology, 85 Tran Quoc Toan, District 3, Ho Chi Minh City 700000, Viet Nam;3. U.S. Geological Survey, Alabama Cooperative Fish and Wildlife Research Unit, 602 Duncan Drive, Auburn University, Alabama 36849, USA;4. School of Forestry and Wildlife Sciences, Auburn University, 602 Duncan Drive, Auburn, AL 36849, USA |
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| Abstract: | In this paper, the diffusion of less polluting capital in response to a stock externality is investigated. An economy is considered with identical polluted agents and a continuum of polluters who have the ability to invest in less polluting capital units. The option approach of investment decisions is used to justify environmental policies based on pollution thresholds and emission standards. The dynamics of optimal diffusion is first examined. The design of a suitable emission tax is then considered and some cases of tax inefficiency are detailed in the context of a game between symmetric polluters. The model is finally applied to greenhouse gas accumulation. |
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