This paper argues that, in situations where choices are made between mutually exclusive investment projects and where there are economic rents, free allocation of tradable emission permits in emissions trading systems can weaken incentives for firms to invest in less carbon-intensive...

We introduce a simple, easy to implement instrument for jointly eliciting risk and ambiguity attitudes. Using this instrument, we structurally estimate a two-parameter model of preferences. Our findings indicate that ambiguity aversion is significantly overstated when risk neutrality is assumed....