MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS
HOCHIMINH CITY
LE QUOC THANH
INVESTMENT DECISION UNDER
UNCERTAINTY: THE CASE OF CARBON
TAXATION IN DEVELOPING COUNTRIES
The Dissertation of Economics
Major: Finance & Banking (9340201)
Hochiminh City - 2019
MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS
HOCHIMINH CITY
THE DISSERTATION OF ECONOMICS
INVESTMENT DECISION UNDER
UNCERTAINTY: THE CASE OF CARBON
TAXATION IN DEVELOPING COUNTRIES
Major: Finance & Banking (9340201)
Scientific Instructors: Associate Prof.Dr. Nguyen Huu Huy Nhut
Dr.Pham Quoc Viet
Hochiminh City – 2019
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ACKNOWELEDGES
My name is Le Quoc Thanh, PhD student in the major of Finance-Banking at
University of Economics Hochiminh City. I would like to confirm that the research
results in this thesis is from my own works and has not been published.
Le Quoc Thanh
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TABLE OF CONTENT
Additional cover
Acknowledgements
Table of content
Abbreviation
List of Tables and Diagram/Graphs
ABBREVIATION ..................................................................................................... VII
LIST OF TABLES AND DIAGRAMS .................................................................. VIII
SUMMARY ................................................................................................................. IX
CHAPTER 1: OVERVIEW OF RESEARCH ........................................................... 1
1.1. Research setting and motivations ........................................................................ 1
1.2. Research targets and research questions. ............................................................. 7
1.2.1. Research targets. ........................................................................................... 7
1.2.2. Research questions........................................................................................ 8
1.3. Research objectives and scope of research. ......................................................... 8
1.3.1. Research objectives. ..................................................................................... 8
1.3.2. Scope of research .......................................................................................... 9
1.4. Methodology. ....................................................................................................... 9
1.5. Expected outcomes of the thesis: ....................................................................... 11
1.6. Structure of the thesis. ....................................................................................... 11
CHAPTER 2: THEORETICAL FRAMEWORK AND EMPIRICAL
EVIDENCES ............................................................................................................... 14
2.1 The firm and investment operation. .................................................................... 14
2.1.1 The rationality of the firm’s investment decision. ....................................... 14
2.1.2 Methods of project appraisal. ...................................................................... 19
2.1.3 Uncertainty and risk. .................................................................................... 22
2.1.4 Classification of investors based on risk response. ..................................... 26
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2.2 Foreign direct investment and its impact factors. ............................................... 28
2.3 Irreversible project .............................................................................................. 31
2.4 Investment decision under uncertainties............................................................. 42
2.5 Investment decisions under carbon taxation uncertainties ................................. 47
2.5.1 Carbon taxes and carbon leakages ............................................................... 47
2.5.2 Taxpayers and rates of carbon tax. .............................................................. 52
2.5.3 Investment decision under carbon taxation uncertainties ............................ 54
2.6 Research gaps ..................................................................................................... 56
2.6.1 Research gap 1 ............................................................................................. 56
2.6.1 Research gap 2 ............................................................................................. 58
2.7 Conclusion of Chapter 2 ..................................................................................... 59
CHAPTER 3: RESEARCH METHOD .................................................................... 61
3.1 Selection of research methods. ........................................................................... 61
3.2 Research model ................................................................................................... 63
3.3 Model development based risk response of investors. ....................................... 65
3.4 Optimization techniques by maths. .................................................................... 67
3.5 Simulation of research results ............................................................................. 68
3.6 Simulated data .................................................................................................... 70
3.7 Conclusion of Chapter 3. .................................................................................... 70
CHAPTER 4: INVESTMENT DECISIONS UNDER UNCERTAINTIES OF
CARBON TAXATION .............................................................................................. 71
4.1. The Basic model ................................................................................................ 71
4.2.1 The case of non-carbon taxation .................................................................. 73
4.2.2 Modelling the case of carbon taxation ......................................................... 76
4.3 The ratio of capital/labor in case of carbon and non-carbon taxation. ............... 78
4.4 Modeling the case of uncertain timing in application of carbon taxation .......... 80
4.4.1 The Government does not announce timing of carbon taxation: ................ 81
4.4.2 The Government announces application timing of carbon taxation at the
year nth .................................................................................................................. 81
4.5 Modeling the case of investors with different technology level ......................... 83
4.5.1 The case of non-carbon taxation. ................................................................. 83
4.5.2 The case of carbon taxation. ........................................................................ 85
4.6 Numerical results of simulation from the case of carbon and non-carbon
taxation. .................................................................................................................... 88