Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments – An Application to the Swedish Pulp and Paper Industry and Energy Sector
Résumé
We propose a method for estimating hurdle
rates for firms' investments in pollution abatement technology, using ex
post data. The method is based on a structural option value model where the
future price of polluting fuel is the major source of uncertainty facing the
firm. The econometric procedure is illustrated using a panel of firms from
the Swedish pulp and paper industry, and the energy and heating sector from
2000 to 2003. The results indicate a hurdle rate of investment of almost 3
in the pulp and paper industry and almost 4 in the energy and heating sector.
rates for firms' investments in pollution abatement technology, using ex
post data. The method is based on a structural option value model where the
future price of polluting fuel is the major source of uncertainty facing the
firm. The econometric procedure is illustrated using a panel of firms from
the Swedish pulp and paper industry, and the energy and heating sector from
2000 to 2003. The results indicate a hurdle rate of investment of almost 3
in the pulp and paper industry and almost 4 in the energy and heating sector.
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