Stranding Ahoy? Heterogeneous Transition Beliefs and Capital Investment Choices

Believe Me When I Say Green! Heterogeneous Expectations and Climate Policy Uncertainty

“…Another possible direction of research is to study financial, rather than capital, investment decisions, which would require incorporating a financial sector in the model. Finally, we abstract here from premature decommissioning, loss of capacity utilisation and costly capital reconversion ('stranding'), although including these dimensions, both in reality and in expectations, is likely to have implications on the overall transition dynamics (see for instance Cahen-Fourot et al, 2022; Despite these limitations, our results offer several key insights for policy-making. We have shown how the direction and heterogeneity of expectations of future climate mitigation policies can significantly affect the dynamics of the climate policies themselves.…”

“…Zeppini (2015) and Mercure (2015) apply a similar logit framework to the choice on technology adoption, while Cafferata et al (2021) and Dávila-Fernández and Sordi (2020) focus on switching attitudes towards green policies, and Galanis et al (2022b) employs it to study country participation in international environmental agreements. Cahen-Fourot et al (2022) study how heterogeneous transition expectations affect investment decision choices in a forward-looking probit model with capital 'stranding'. Torren-Peraire et al (2023) study the interaction between decarbonisation and cultural change in an agent-based model where the influence individuals have on each other recalls Brock and Hommes (1998) discrete choice models.…”

Financial stability, stranded assets and the low‐carbon transition – A critical review of the theoretical and applied literatures

“…(2020) (2020), Battiston et al. (2021), Dunz et al.’s (2021), Gourdel et al.’s (2022), and Cahen‐Fourot et al.’s (2022) works on expectations are decisive first steps.…”