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Session Chair: Hong Zhang, Singapore Management University Discussant: Yan Xiong, Hong Kong University of Science and Technology
Location:9B301 (3rd basement floor, International Hall)
Presentations
Allocative Efficiency of Green Finance Instruments
Kai Li1, Yicheng Wang1, Chenjie Xu2
1Peking University HSBC Business School; 2Finance Department, Shanghai University of Finance and Economics
This paper investigates the allocative efficiency of green finance instruments through a general equilibrium model with heterogeneous firms and financial frictions. We emphasize the impact of the timing of financial instruments—'ex-post', such as carbon taxes, versus 'ex-ante', like green credit schemes—on the distribution of dirty capital and its environmental implications. Our study reveals that ex-post instruments inadvertently direct dirty capital towards financially constrained firms with higher utilization, potentially exacerbating economy-wide emission intensity. Such theoretical prediction explains empirical observations of Hartzmark and Shue (2023), indicating such strategies may be counterproductive. Conversely, ex-ante instruments yield beneficial redistributions. The study emphasizes the significance of incorporating the distributive effects of green finance tools into their design and advocates for a general equilibrium viewpoint to evaluate their effectiveness comprehensively, highlighting the pivotal role of instrument timing.
