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Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions under Uncertainty and Irreversibility

Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions under Uncertainty and Irreversibility

Chapter:
(p.281) 9 Environmental Policy and Firm Behavior: Abatement Investment and Location Decisions under Uncertainty and Irreversibility
Source:
Behavioral and Distributional Effects of Environmental Policy
Author(s):
Anastasios Xepapadeas
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226094809.003.0010

A firm's response to changes in environmental policy is an issue that has drawn considerable attention in the environmental economics literature. Questions that usually arise when environmental policy is introduced or changed are primarily associated with how firms react regarding their choices of investment in productive or abatement capital, the mix of relatively more or less polluting inputs, the choice of labor input or the decisions about research and development expenses, or what kind of decisions firms make regarding location choices. This chapter explores the behavior of polluting firms regarding expansion of abatement capital and location decisions in the presence of environmental policy. Environmental policy takes the form of emissions taxes or tradable emissions permits, as well as subsidies for the costs of expanding abatement capital. The chapter emphasizes firm behavior under uncertainty and irreversibility.

Keywords:   environmental policy, firm behavior, abatement capital, location decisions, emissions taxes, emissions permits, subsidies

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