Abstract: Introducing the parameters of pollution discharge reduction and transaction costrate,the pollution abatement technology investment decision models for monopoly firms with and without transaction cost are given,based on real option theory respectively.The stimulating results show that the amounts of reduction are negatively related to firms'optimal investment thresholds,and positively related to firms'investment value,while transaction costs reduce firms'timing of investments and investment value,and hurt firms'incentives to invest and trade.

Key words: pollution abatement technology investment, pollution discharge reduction, transaction cost, real option