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Optimal growth with pollution: how to use pollution permits?

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  • Jouvet, Pierre-Andre
  • Michel, Philippe
  • Rotillon, Gilles

Abstract

We study optimal growth and its decentralization in an overlapping generations model. The decentralization of an optimal path needs some specific taxes in addition to lump-sum transfers if there are externalities. The introduction of market of permits allows neutralizing the external environmental effects. We shows that there is a unique management of permits such that the equilibrium coincides with the optimal path: all permits should be auctioned i.e. no permits to firms. This conclusion is in contradiction with the usual pratice of grandfathering
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  • Jouvet, Pierre-Andre & Michel, Philippe & Rotillon, Gilles, 2005. "Optimal growth with pollution: how to use pollution permits?," Journal of Economic Dynamics and Control, Elsevier, vol. 29(9), pages 1597-1609, September.
    • Handle: RePEc:eee:dyncon:v:29:y:2005:i:9:p:1597-1609
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    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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