Investment and pricing of corporation under pollution constraints

FAN Ding-xiang, LIAO Jin-zhong, YANG Jin-qiang

Systems Engineering - Theory & Practice ›› 2012, Vol. 32 ›› Issue (4) : 860-866.

PDF(622 KB)
中国科学院数学与系统科学研究院期刊网
PDF(622 KB)
Systems Engineering - Theory & Practice ›› 2012, Vol. 32 ›› Issue (4) : 860-866. DOI: 10.12011/1000-6788(2012)4-860

Investment and pricing of corporation under pollution constraints

  • FAN Ding-xiang1,2, LIAO Jin-zhong1, YANG Jin-qiang3
Author information +
History +

Abstract

This paper considered an optimal problem of dynamic investment and value evaluation under uncertainty for a firm facing pollution constraints from the government. By the method of stochastic dynamic optimal controls, we derive free-boundary ordinary differential equation for the firm value, and the corresponding investment strategy and pollution control decision. The numeric results show that the corporation has no payout on the control of pollution constraints and the effect on investment, and pricing is not significant when the capital stock is low. However, if the capital stock is high enough, the firm optimally makes some payment to lower the emission and the corresponding constraints lower the firm's total value and the average and marginal value of the capital, and it also restrains the motivation of the investment.

Key words

pollution constraints / optimal investment / firm value / capital liquidation

Cite this article

EndNote

Ris (Procite)

Bibtex

Download Citations
FAN Ding-xiang , LIAO Jin-zhong , YANG Jin-qiang. Investment and pricing of corporation under pollution constraints. Systems Engineering - Theory & Practice, 2012, 32(4): 860-866 https://doi.org/10.12011/1000-6788(2012)4-860

References

[1] Jorgenson D W.Capital theory and investment behavior[J].American Economic Review,1963,53(2): 247-259.
[2] Eisner R,Strotz R H.Determinants of Business Investment[M].New York: Prentice-Hall,Englewood Cliffs,1963:60-233.
[3] Rothschild M.On the cost of adjustment[J].Quarterly Journal of Economics,1971,85(4): 605-622.
[4] Nickell S J.The Investment Decisions of Firms[M].Cambridge: Cambridge University Press,1978.
[5] Arrow K J.Optimal Capital Policy with Irreversible Investment[M].Edinburgh: Edinburgh University Press,1968: 1-19.
[6] Tobin J.A general equilibrium approach to monetary theory[J].Journal of Money,Credit,and Banking,1969,1(1):15-29.
[7] Hayashi F.Tobin's marginal Q and average Q: A neoclassical interpretation[J].Econometrica,1982,50: 215-224.
[8] Abel A B,Eberly J C.The effects of irreversibility and uncertainty on capital accumulation[J].Journal of Monetary Economics,1999,44: 339-377.
[9] Le D T,Jones J B.Optimal investment with lumpy costs[J].Journal of Economic Dynamics and Control,2005,29:1211-1236.
[10] DeMarzo P M,Fishman M J,He Z G,et al.Dynamic agency and the Q theory of investment[EB/OL].http://www.nber.org/public html/confer/2008/si2008/EFEL/wang.pdf,2008-04-24.
[11] DeMarzo P M,Fishman M J.Agency and optimal investment dynamics[J].Review of Financial Studies,2007a,20(1): 151-188.
[12] DeMarzo P M,Fishman M J.Optimal long-term financial contracting[J].Review of Financial Studies,2007b,20(6):2079-2128.
[13] DeMarzo P M,Sannikov Y.A continuous-time agency model of optimal contracting and capital structure[J].Journal of Finance,2006,61: 2681-2724.
[14] Bolton P,Chen H,Wang N.A unified theory of Tobin's Q,corporate investment,financing and risk management[R].NBER Working Paper,2009.
[15] Kort P M.Effects of pollution restrictions on dynamic investment policy of a firm[J].Journal of Optimization Theory and Applications,1994,83: 489-509.
[16] Hartl R F,Kort P M.Capital accumulation of a firm facing an emissions tax[J].Journal of Economics,1996a,63(1):1-23.
[17] Hartl R F,Kort P M.Capital accumulation of a firm facing environmental constraints[J].Optimal Control Applications and Methods,1996b,17(4): 253-266.
[18] 邬安沙,李亚琼.动态环境约束下企业的资本积累[J].经济数学,2006,23(4): 394-399.Wu A S,Li Y Q.Capital accumulation of a firm facing dynamic environmental constraints[J].Mathematics in Economics,2006,23(4): 394-399.
[19] 彭水军,包群.环境污染、内生经济增长与经济可持续发展[J].数量经济技术经济研究,2006(9): 114-126.Peng S J,Bao Q.Environmental pollution,endogenous growth and sustainable development[J].Journal of Quantitative & Technical Economics,2006(9): 114-126.
[20] 于渤,黎永亮,迟春洁.考虑能源耗竭,污染治理的经济可持续增长内生模型[J].管理科学学报,2006,9(4):12-17.Yu B,Li Y L,Chi C J.Endogenous model with exhaustible energy,pollution abatement spending and sustainable growth induced[J].Journal of Management Sciences in China,2006,9(4): 12-17.
[21] 许士春,何正霞,魏晓平.资源消耗、污染控制下经济可持续最优增长路径[J].管理科学学报,2006,13(1): 20-30.Xu S C,He Z X,Wei X P.Sustainable optimal economic growth path under resource consumption and pollution control[J].Journal of Management Sciences in China,2006,13(1): 20-30.
[22] Kogan L.An equilibrium model of irreversible investment[J].Journal of Financial Economics,2001,62: 201-245.
[23] Kogan L.Asset prices and real investment[J].Journal of Financial Economics,2004,73: 411-431.
[24] Pindyck R S,Wang N.The economic and policy consequences of catastrophes[R].NBER Working Paper,2010.
[25] Lucas R E,Prescott E C.Investment under Uncertainty[J].Econometrica,1971,39: 659-681.
[26] Abel A B,Blanchard O J.An intertemporal model of saving and investment[J].Econometrica,1983,51(3): 675-692.
[27] Tallarini T D.Risk-sensitive real business cycle[J].Journal of Monetary Economics,2000,45: 507-532.
[28] Cox J C,Ingersoll J E,Ross S A.An intertemporal general equilibrium model of asset prices[J].Econometrica,1985,53: 363-384.
[29] Jones L E,Manuelli R E.Neoclassical models of endogenous growth: The effects of fiscal policy,innovation and fluctuations[J].Handbook of Economic Growth,2005,1: 13-65.
[30] Eberly J C,Wang N.Capital reallocation and growth[J].American Economic Review Papers and Proceedings,2009,99(2):560-566.
PDF(622 KB)

347

Accesses

0

Citation

Detail
Sections
Recommended

/

〈 〉