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Firm Dynamics with Tradable Output Permits
Author(s) -
Weninger Quinn,
Just Richard E.
Publication year - 2002
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/1467-8276.00320
Subject(s) - economics , capital (architecture) , production (economics) , investment (military) , value (mathematics) , microeconomics , abandonment (legal) , industrial organization , monetary economics , business , archaeology , machine learning , politics , political science , computer science , law , history
Abstract We study firm dynamics, firm value, equilibrium permit prices and market efficiency in a natural resource industry that is managed with tradable output permits. New firms must purchase capital and output permits before they enter. Active firms must consider the economic cost of capital and the cost of owning the permit when contemplating exit. The value of the capital used in the production process has nonseparable effects on permit prices and market efficiency. Costly investment reversibility (in the firm's productive capital) and uncertainty reduce permit prices and prolong the abandonment of unproductive capital. Policies to improve economic performance are identified.