A Corporate Finance Perspective on Environmental Policy

Arbeitspapier

This paper examines optimal enviromental policy when external financing is costly for firms. We introduce emission externalities and industry equilibrium in the Holmström and Tirole (1997) model of corporate finance. While a cap-and-trading system optimally governs both firms` abatement activities (internal emission margin) and industry size (external emission margin) when firms have sufficient internal funds, external financing constraints introduce a wedge between these two objectives. When a sector is financially constrained in the aggregate, the optimal cap is strictly above the Pigouvian benchmark and emission allowances should be allocated below market prices. When a sector is not financially constrained in the aggregate, a cap that is below the Pigiouvian benchmark optimally shifts market share to less polluting firms and, moreover, there should be no "grandfathering" of emission allowances. With financial constraints and heterogeneity across firms or sectors, a uniform policy, such as a single cap-and-trade system, is typically not optimal.

Angaben zum Objekt

• Sprache: Englisch

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance ; Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
• Thema: pigou tax ; financing ; climate change

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Heider, Florian ; Inderst, Roman
• Ereignis: Veröffentlichung
• (wer): ZBW – Leibniz Information Centre for Economics
• (wo): Kiel, Hamburg
• (wann): 2021

Weitere Informationen

• Handle: http://hdl.handle.net/10419/253669
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ