Equilibrium price estimation of green bonds from the perspective of resource allocation

Abstract

Green bonds offer substantial positive externalities compared to other types of bonds. This leads to a resource distribution efficiency that falls below the optimal level dictated by Pareto efficiency. It becomes essential to determine a means by which green bonds can achieve an equilibrium price, ensuring optimal public resource allocation and maximized social welfare. From the perspective of externalities, this study employs the carbon shadow price (CSP) to determine the equilibrium price of carbon emissions. Subsequently, this value aids in estimating the equilibrium price of green bonds. Firstly, we introduced an optimized bootstrap method to estimate the bias-corrected CSP at the provincial level in China from 2007 to 2020. Then, a pricing framework is developed, integrating both the carbon trading price and the estimated CSP, to determine the green bond's equilibrium price. Numerical simulations indicate that, under current conditions, green bonds cannot achieve the equilibrium price by relying solely on the carbon trading mechanism. Therefore, further development of China's carbon emissions trading market is required.

Keywords: Bootstrap method; Carbon shadow price; Equilibrium price; Externality internalization; Green bond pricing; Resource allocation.