Environment, Asset Characteristics, and Optimal Effluent Fees |
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Authors: | Jyh-Bang Jou |
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Affiliation: | (1) Graduate Institute of National Development, College of Social Science, National Taiwan University, No. 1 Roosevelt Rd. Sec 4, Taipei, 106, Taiwan, R.O.C. |
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Abstract: | This article investigates theissue of optimal effluent fees in a frameworkwhere waste emissions are abated by investingin capital of which the pay-off is uncertainand the cost is fully sunk. The stock of wasteemissions harms an individual firm'sproduction, but the firm will underestimatethis external effect upon investing. Consequently, the firm will invest lesscapital, and thereby, pollute more than issocially desirable. The regulator, who can useeffluent fees to correct this, should imposelower effluent fees on irreversible investmentsthan on costlessly reversible ones whenuncertainty arises. |
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Keywords: | effluent fees environmental externality irreversible investment real options |
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