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Optimal dynamic scale and structure of a multi-pollution economy

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  • Baumgärtner, Stefan
  • Jöst, Frank
  • Winkler, Ralph

Abstract

We analyze the optimal dynamic scale and structure of a two-sector-economy, where each sector produces one consumption good and one specific pollutant. Both pollutants accumulate at different rates to stocks which damage the natural environment. This acts as a dynamic driving force for the economy. Our analysis shows that along the optimal time path (i) the time scale of economic dynamics is mainly determined by the lifetime of pollutants, their instantaneous harmfulness and the discount rate; (ii) economic scale and structure, as well as resulting welfare, may be non-monotonic, and (iii) environmental damage may exhibit an inverted U-shape form. These results raise important questions about the optimal design of environmental policies in a multi-pollution economy. We suggest a system of dynamic Pigouvian emission taxes, each of which should be levied specifically on one particular pollutant. We show that the optimal time path of each tax level is determined by the characteristics not only of that particular pollutant but also of all other pollutants.

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Bibliographic Info

Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 68 (2009)
Issue (Month): 4 (February)
Pages: 1226-1238

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Handle: RePEc:eee:ecolec:v:68:y:2009:i:4:p:1226-1238

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Web page: http://www.elsevier.com/locate/ecolecon

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Keywords: Dynamic economy-environment interaction Multi-pollutant emissions Non-monotonic development Optimal scale Stock pollution Structural change Time scale;

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Citations

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Cited by:
  1. Ralph Winkler, 2008. "Optimal control of pollutants with delayed stock accumulation," CER-ETH Economics working paper series 08/91, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  2. Sophie Legras, 2011. "Incomplete model specification in a multi-pollutants setting : the case of climate change and acidification," Working Papers 44262, Institut National de la Recherche Agronomique, France.
  3. Legras, Sophie, 2011. "Incomplete model specification in a multi-pollutants setting: The case of climate change and acidification," Resource and Energy Economics, Elsevier, vol. 33(3), pages 527-543, September.

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