The effect of uncertainty on pollution abatement investments: Measuring hurdle rates for Swedish industry |
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| Authors: | Åsa Löfgren Katrin Millock Céline Nauges |
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| Affiliation: | 1. Department of Economics, Göteborg University, P.O. Box 640, SE 405 30 Göteborg, Sweden;2. Paris School of Economics, CNRS, Centre d’Economie de la Sorbonne, Université Paris 1, 106/112 Boulevard de l’Hôpital, 75647 Paris Cedex 13, France;3. Toulouse School of Economics, LERNA-INRA, Manufacture des Tabacs, 21 Allée de Brienne, 31000 Toulouse, France |
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| Abstract: | We estimate hurdle rates for firms’ investments in pollution abatement technology, using ex post data. The method is based on a structural option value model where the future price of polluting fuel is the major source of uncertainty facing the firm. The empirical procedure is illustrated using a panel of firms from the Swedish pulp and paper industry, and the energy and heating sector, and their sulfur dioxide emissions over the period 2000–2003. The results indicate that hurdle rates of investment vary from 2.7 to 3.1 in the pulp and paper industry and from 3.4 to 3.6 in the energy and heating sector depending on econometric specification. |
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