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Tradable permits schemes and new technology adoption


Moreno-Bromberg, Santiago; Taschini, Luca (2013). Tradable permits schemes and new technology adoption. NCCR FINRISK Working Paper Series 860, University of Zurich.

Abstract

In this paper technology adoption behaviour under (regulatory) no-anticipation of new technology, and imperfect competition in a tradable permits scheme (rents market) is investigated. The inter-dependence between the incentive to adopt a new technology and the allowance price is explicitly modelled. A firm's longterm incentives to adopt a new technology depend on the future value of tradable permits (scarcity rents) and, ultimately, on the level of uncovered pollution emissions (permits demand) and the level of offered emission permits (permits supply)-both affected by the current technological status. In an imperfectly competitive permit market, the aggregate supply is the solution of a non-cooperative game that possesses a pure-strategy Nash equilibrium. It is shown that this condition is also satisfied when a price-support instrument, which is contingent on the adoption of the new technology, is introduced. This is done to foster the firms' long-term incentives to adopt new technologies. The impact of the price-support contract on the scarcity rent value and on the technology adoption behaviour is both theoretically and numerically examined: (i) it creates a floating price floor that can be interpreted as a minimum price guarantee; (ii) the higher the minimum price guarantee, the higher the aggregate level of adoption and the earlier the adoption of new technologies.

Abstract

In this paper technology adoption behaviour under (regulatory) no-anticipation of new technology, and imperfect competition in a tradable permits scheme (rents market) is investigated. The inter-dependence between the incentive to adopt a new technology and the allowance price is explicitly modelled. A firm's longterm incentives to adopt a new technology depend on the future value of tradable permits (scarcity rents) and, ultimately, on the level of uncovered pollution emissions (permits demand) and the level of offered emission permits (permits supply)-both affected by the current technological status. In an imperfectly competitive permit market, the aggregate supply is the solution of a non-cooperative game that possesses a pure-strategy Nash equilibrium. It is shown that this condition is also satisfied when a price-support instrument, which is contingent on the adoption of the new technology, is introduced. This is done to foster the firms' long-term incentives to adopt new technologies. The impact of the price-support contract on the scarcity rent value and on the technology adoption behaviour is both theoretically and numerically examined: (i) it creates a floating price floor that can be interpreted as a minimum price guarantee; (ii) the higher the minimum price guarantee, the higher the aggregate level of adoption and the earlier the adoption of new technologies.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
JEL Classification:D8, H2, L5, Q5
Language:English
Date:1 July 2013
Deposited On:03 Mar 2014 08:16
Last Modified:05 Apr 2016 17:44
Series Name:NCCR FINRISK Working Paper Series
Official URL:http://www.zora.uzh.ch/93700/
Related URLs:http://www.nccr-finrisk.uzh.ch/wps.php?action=query&id=860
Other Identification Number:merlin-id:9273

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