Investors’ reaction to the government credibility problem: A real option analysis of emission permit policy risk

Kang, Sang Baum; Letourneau, Pascal

doi:10.1016/j.eneco.2015.11.023

Cited by 19 publications

(6 citation statements)

References 25 publications

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“…commitments are perceived as credible can influence investment and social outcomes (Nemet et al, 2014). Indeed, the role of the credibility of climate policy has attracted growing interest in climate economics, building on related work in monetary, fiscal and trade policy (Bosetti and Victor, 2011;Helm, 2003;Kang and Létourneau, 2016;Nemet et al, 2017). For example, in a model-based assessment Bosetti and Victor (2011) show that a lack of regulatory credibility has massive implications for costs because "firms and other agents become short-sighted and unable to make optimal investments in research and development as well as long-lived technologies" (p. 1).…”

Section: Analytical Framework and Hypothesesmentioning

confidence: 99%

Do policy mix characteristics matter for low-carbon innovation? A survey-based exploration of renewable power generation technologies in Germany

2018

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Section: Analytical Framework and Hypothesesmentioning

confidence: 99%

Do policy mix characteristics matter for low-carbon innovation? A survey-based exploration of renewable power generation technologies in Germany

2018

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“…In the case of energy, evidence suggests that whether political 1 The first and third levels of policy mix consistency relates to what the policy design literature refers to as goal 'coherence' and 'congruence' of goals and instruments (Howlett and Rayner (2013), Kern and Howlett (2009) commitments are perceived as credible can influence investment and social outcomes (Nemet et al, 2014). Indeed, the role of the credibility of climate policy has attracted growing interest in climate economics, building on related work in monetary, fiscal and trade policy (Bosetti and Victor, 2011;Helm, 2003;Kang and Létourneau, 2016;Nemet et al, 2017). For example, in a model-based assessment Bosetti and Victor (2011) show that a lack of regulatory credibility has massive implications for costs because "firms and other agents become short-sighted and unable to make optimal investments in research and development as well as long-lived technologies" (p. 1).…”

Section: Analytical Framework and Hypothesesmentioning

confidence: 99%

Do Policy Mix Characteristics Matter for Low-Carbon Innovation? A Survey-Based Exploration for Renewable Power Generation Technologies in Germany

Rogge

Schleich

2017

SSRN Journal

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Article (Accepted Version)http://sro.sussex.ac.uk Rogge, Karoline and Schleich, Joachim (2018) Do policy mix characteristics matter for lowcarbon innovation? A survey-based exploration of renewable power generation technologies in Germany. Research Policy, 47 (9). AbstractPolicy mixes may play a crucial role in redirecting and accelerating innovation towards low-carbon solutions, thus addressing a key societal challenge. Towards this end, some argue that the characteristics of such policy mixes matter greatly, yet with little empirical evidence backing up such claims. In this paper we explore this link between policy mix characteristics and low-carbon innovation, using the research case of the transition of the German electricity system towards renewable energy. Our empirical insights are based on an innovation survey administered to German manufacturers of renewable power generation technologies which builds on the Community Innovation Survey. For our purposes we adjusted the survey to better capture companies' perceptions of policy mixes. Employing a bivariate Tobit model we find evidence that companies' perceptions regarding the consistency and credibility of a policy mix are positively associated with their innovation expenditures for renewable energies, and this positive link intensifies when considering the mutual interdependence of these policy mix characteristics. In contrast, neither the comprehensiveness of the instrument mix nor the coherence of policy processes were found to be related to innovation expenditures. Overall, these findings suggest that future research on low-carbon and eco-innovation should pay greater attention to the characteristics of policy mixes, rather than focusing on policy instruments only. Finally, our findings indicate a need to consider how policy may be measured in innovation surveys to generate better informed policy advice regarding the greening of innovation.

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“…The wrong decision can be reversed at no costs and would even not be made if the future is known with certainty. Changing a decision is in most cases costly, because, for example, changing the decision takes time and the opportunity costs of time are positive, and changing decisions also requires cognitive resources (Kahneman 2012). Studies in behavioral economics show that sensitivity to sunk costs has been widely observed among humans and even animals (Sweis et al 2018).…”

Section: Irreversibility and Adjustment Costsmentioning

confidence: 99%

Real Options and Environmental Policies: The Good, the Bad, and the Ugly

Wesseler

Zhao

2019

Annu. Rev. Resour. Econ.

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The literature on real options shows that irreversibilities, uncertainties about future benefits and costs, and the flexibility in decision making generate benefits and costs of delaying immediate action. When applied to government policy making, real option models can lead to efficient policies that take full account of these trade-offs, but they can also cause strategic behavior that tries to delay policies through influencing important elements such as downside risks. This contribution reviews the latest developments in real option–based policy research by looking at what we know about the benefits from waiting (the good), the costs from waiting (the bad), and how strategic behavior can influence policies (the ugly). Much has been said in the literature about the good and the bad, but more work is needed to study the ugly aspects of real option–driven policies.

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Investors’ reaction to the government credibility problem: A real option analysis of emission permit policy risk

Cited by 19 publications

References 25 publications

Do policy mix characteristics matter for low-carbon innovation? A survey-based exploration of renewable power generation technologies in Germany

Do policy mix characteristics matter for low-carbon innovation? A survey-based exploration of renewable power generation technologies in Germany

Do Policy Mix Characteristics Matter for Low-Carbon Innovation? A Survey-Based Exploration for Renewable Power Generation Technologies in Germany

Real Options and Environmental Policies: The Good, the Bad, and the Ugly

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