Corporate environmental protection under uncertainty
Working paper
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http://hdl.handle.net/11250/180529Utgivelsesdato
2003Metadata
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- Discussion Papers [1000]
Sammendrag
Abstract:
Investment in pollution prevention technologies are often made under significant uncertainty about
the future pay-off from the investments. However, as time passes some of the uncertainties may be
resolved by new information, implying that the timing of investments becomes an important issue for
the company. This paper focuses on uncertainty about a future environmental tax, and shows, within
a two period model, that a specific tax uncertainty, standing alone, does not create any incentives for
early investments. However, introducing a market share increase linked to the investment, the tax
uncertainty may strengthen the incentives for early investments.
Keywords: Uncertainty, Irreversibility, Environmental management, Tax uncertainty, Option value