The e¤ects of two environmental policy options for the reduction of pollution emissions, i.e. taxes and non-tradable quotas, are analyzed. In contrast to the prior literature this work endogenously takes into account the level of emissions before and after the adoption of the new environmental policy. The level of emissions is determined by solving the …rm's pro…t maximization problem under taxes and …xed quotas. We …nd that the optimal adoption threshold under taxes is always larger than the adoption threshold under …xed quota, even in a setting characterized by ecological uncertainty and ambiguity -in the form of Choquet-Brownian motionson future costs and bene…ts over adopting environmental policies.
In this paper we consider N -phased investment opportunities where the time evolution of the project value follows a jump-diffusion process. An explicit valuation formula is derived under two different scenarios: in the first case we consider fixed and certain investment costs and in the second case we consider cost uncertainty and assume that investment costs follow a jump-diffusion process.
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