Determinants of investment in cleaner technologies in the United States bleached kraft pulp industry

Economic theory typically assumes that firms will rationally implement the minimum controls mandated by environmental regulations. We observe mounting evidence, however, that firms face private incentives for voluntary environmental management. Policies that ensure acceptable levels of environmental protection without inhibiting private incentives are expected to produce gains in cost-effectiveness. This study builds on the growing economic literature addressing incentives for voluntary overcompliance. Specifically, the study identifies determinants of investment in three cleaner technologies used in bleached kraft pulp production, with special emphasis on factors influencing the value of waiting to resolve uncertainty. The three technologies are extended delignification, oxygen delignification, and elemental chlorine-free bleaching.; The theory of irreversible investment under uncertainty provides the conceptual framework for the analysis. The theory predicts that a decision maker will invest in an asset if the expected net present value is positive and the value of waiting to resolve uncertainty is negative. The primary empirical method used in the study is a double hurdle model. Although expected net present value and the value of waiting are unobservable, one can infer information about the values by observing if adoption occurs. The probability of adoption is hypothesized to be a function of variables that influence the technologies' capital cost, net returns, the discount rate, and stochastic volatility of investment values. Data were gathered on mill level production, marketing and toxic release variables, company level financial variables, state level environmental expenditures, and county level socioeconomic variables.; The results of the analysis suggested that public and regulatory pressure did influence cleaner technology adoption, although internal financial considerations appeared to dominate the decision making process. The results indicated that the value of waiting to resolve uncertainty represented an important barrier to adoption. Environmental policy design can accommodate firms' incentives for voluntary environmental management by incorporating provisions that reduce regulatory uncertainty, rewarding performance beyond compliance, disseminating information about firms' environmental performance, and providing credible means by which firms can distinguish their products with environmental attributes.