The determination of timing and technology level of an abatement investment

The main contribution of this paper is to reveal WHEN firms, in general, invest in anti-pollution equipment and WHAT technology level they adopt. Their responsive behaviour toward the policy parameters such as observation probability, interest rate or penalty, and endogenous factors such as operating cost and emission volume is analyzed in this paper. The results show that an increase in observation probability leads to an increase in technology level and moves the schedule of abatement investment ahead. However, an increase in interest rate results in a decrease in technology level and delays the timing of abatement investment.