This paper focuses on environmental policies aimed at rising investment in pollution abatement capital. Capital irreversibility is not postulated but endogenized using a quadratic adjustment cost function. We assume that ecological uncertainty, i.e. uncertainty over the dynamics of pollution,...

In this chapter we present a continuous time model with reversible abatement capital in order to analyze the effects of environmental policies on the value of the firm and investment decisions. We show that the effects depend on what sort of future policy are implemented. We focus on investment...