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In this chapter we present a continuous time model with reversible abatement capital in order to analyze the effects of environmental policies on the value of the firm and investment decisions. We show that the effects depend on what sort of future policy are implemented. We focus on investment effects of changes in corrective taxes to control the use of polluting inputs, and subsidies to promote abatement investment. We show that (1) while taxes have a depressive effect on capital accumulation, subsidies boost investment; (2) the impact of these policies on the value of the firm is ambiguous. This latter result has important empirical implications insofar as investment are based on the average value of the firm rather than the (unobservable) marginal value.

The purpose of this paper is to assess the role of the Protocol '93 bargaining model in favouring the slow‐down of the Italian economy and to design a correction.

The impact of the Protocol on factor income distribution is assessed through a deterministic dynamic model, and tested for the 1993‐2008 period. The paper explores theoretically and empirically the weakening of the incentives for both workers and employers to engage in fostering productivity.

In a macroeconomic setting with structural imbalance between the product and the labour markets reforms, the bargaining model has automatically increased up to 2002 the capital share in income, reducing the incentives for both social partners to accelerate productivity, as the labour share in income and the propensity to invest are co‐integrated (Johansen test). An analytical solution for correcting the bargaining distributive bias is proposed.

Further research should provide a picture of the different distributive behaviours of industrial sectors, particularly for industries exposed to/protected from international competition. The actual functioning of the new bargaining model (the Accordo Quadro of 2009) should also be assessed.

The bargaining model should be reformed so as to restore the right incentives for social partners. National industry‐wide wage bargaining should both incentivise and complement insufficient local bargaining.

The benefit of increased productivity and resumed growth has vast social implications, especially with reference to the sustainability of the welfare system.

The scientific literature has lacked any formal description of the dynamic operation of the Italian bargaining model, which is particularly valuable to both social partners and policy makers.