TY - JOUR

T1 - How environmental concern influences the investment decision

T2 - an application of capital theory

AU - Baumgärtner, Stefan

AU - Faber, Malte Michael

AU - Proops, John

PY - 2002

Y1 - 2002

N2 - We develop a conceptual analysis of long-run decisions about the economy and the environment. In particular, we focus on the innovation of a new technique of production. We base our study on three components. First, capital theory as means of describing production. Second, joint production as implied by the laws of thermodynamics. Third, the time structure of the produced waste by-product, characterised by the magnitude of its degradation rate. The crucial variable in our analysis is the decision maker's time horizon. We show that, unlike in the no pollution case or in the flow pollution case, extending the time horizon when there is a polluting capital bad may make it less likely that a new technique of production is introduced. We conclude that fully taking into account dynamic aspects of environmental pollution considerably increases the complexity of economic valuation and the need for environmental precaution when making an investment decision.

AB - We develop a conceptual analysis of long-run decisions about the economy and the environment. In particular, we focus on the innovation of a new technique of production. We base our study on three components. First, capital theory as means of describing production. Second, joint production as implied by the laws of thermodynamics. Third, the time structure of the produced waste by-product, characterised by the magnitude of its degradation rate. The crucial variable in our analysis is the decision maker's time horizon. We show that, unlike in the no pollution case or in the flow pollution case, extending the time horizon when there is a polluting capital bad may make it less likely that a new technique of production is introduced. We conclude that fully taking into account dynamic aspects of environmental pollution considerably increases the complexity of economic valuation and the need for environmental precaution when making an investment decision.

KW - Sustainability sciences, Management & Economics

UR - http://www.scopus.com/inward/record.url?scp=0036169970&partnerID=8YFLogxK

U2 - 10.1016/S0921-8009(01)00257-9

DO - 10.1016/S0921-8009(01)00257-9

M3 - Journal articles

VL - 40

SP - 1

EP - 12

JO - Ecological Economics

JF - Ecological Economics

SN - 0921-8009

IS - 1

ER -