Differences of Environmental Policy Timing Among Provinces in Chinese Mainland: A Real Options Methodology

Abstract

According to differences among Chinese provinces, especially economic growth and environmental production technology, real options model is used to analyze implementation timing of environmental policies and its main factors under the uncertainty framework. The closed solution and empirical analysis shows that the most important factor of environmental policy timing is technical parameters of environmental production, followed by economic scale and growth, and the disutility parameters caused by environmental pollution, policy implementation cost, the subjective discount factor. As a controllable parameter, the emission reduction ratio required also play an important role. The differences among Chinese provinces require the flexibility of environmental policy, not rigidly uniform.