Irreversible investment under uncertainty in oligopoly
In: Journal of economic dynamics & control, Band 22, Heft 4, S. 627-644
ISSN: 0165-1889
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In: Journal of economic dynamics & control, Band 22, Heft 4, S. 627-644
ISSN: 0165-1889
In: JEPO-D-24-00291
SSRN
A government wants to exploit a renewable resource, yielding a time-varying flow of rent, by leasing it. Leasing contracts can be expropriated before expiration, albeit at a cost. To minimise transactions costs and avoid the 'resource trap' the government would prefer to enter into an infinitely long contract (i.e. sell the resource), if it could commit not to expropriate. However, with finite costs of expropriation credible commitment is impossible: the government either enters into finite contracts, expropriates with positive probability or does both. The value of the resource to the government is increasing in the cost of expropriation, but decreasing in the variability of the resource rent.
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In: Environmental and resource economics, Band 52, Heft 2, S. 213-233
ISSN: 1573-1502
In: Environmental and resource economics, Band 35, Heft 4, S. 259-287
ISSN: 1573-1502
We consider an intertemporal policy game between changing governments that differ in their attitudes towards a particular feature of market outcomes, exemplified with environmental pollution. When in power, a government will choose policy instruments and set strictness of regulation with a view to influencing the policy of future, possibly different, governments. We demonstrate that a 'brown' government favours emission quotas over effluent taxes, as quotas establish property rights that are costly to reverse. Conversely, a 'green' government prefers to regulate by taxes, in order to limit the incentives of future 'brown' governments to ease regulations. Strategic behaviour tends to exaggerate policy differences (making 'green' governments 'greener' and 'brown' governments 'browner') compared to when such strategic considerations were not an issue.
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We explore the efficacy of price and quantity controls as environmental policy instruments in a stochastic setting in which agents are risk averse. We demonstrate that the assumption of risk aversion may improve the performance of a tax relative to that of a system of tradable quotas, and that restricting quota trade may enhance efficiency even though risk aversion in itself limits volumes of trade. The government may be able to improve the performance of a tradable quota system by judicious choice of distribution and amount of initial quotas and by trading pro-actively in the quota market.
BASE
In: Economics of Energy & Environmental Policy, Band 10, Heft 2
In: HEMF Working Paper No. 03/2017
SSRN
Working paper