Publication

Importance of pricing carbon dioxide emissions to mitigate climate change, as a form of either tax or tradable permits, is often emphasized by economists. In this paper,the author examines how such expectations may drive the dynamics of carbon dioxide reduction. He discusses a simple model in which forward-looking firms make investment decisions on a clean technology. The clean technology has positive externalities, and firms benefit from alignment of technology choice with others’. Expectations held by firms have a central meaning for the model.