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Tradable pollution permits in dynamic general equilibrium: Can optimality and acceptability be reconciled?

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  • Bréchet, Thierry
  • Jouvet, Pierre-André
  • Rotillon, Gilles

Abstract

In this paper we study the dynamic general equilibrium path of an economy and the associated optimal growth path in a two-sector overlapping generation model with a stock pollutant. A sector (power generation) is polluting, and the other (final good) is not. Pollution is regulated by tradable emission permits. The issue is to see whether the optimal growth path can be replicated in equilibrium with pollution permits, given that some permits must be issued free of charge for the sake of political acceptability. We first analyze the many adverse impacts of free allowances, and then we propose a policy rule that allows optimality and acceptability to be reconciled.

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Bibliographic Info

Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 91 (2013)
Issue (Month): C ()
Pages: 89-97

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Handle: RePEc:eee:ecolec:v:91:y:2013:i:c:p:89-97

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

Related research

Keywords: General equilibrium; Optimal growth; Pollution; Tradable emission permits; Acceptability;

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  1. Bréchet, Thierry & Jouvet, Pierre-André & Rotillon, Gilles, 2013. "Tradable pollution permits in dynamic general equilibrium: Can optimality and acceptability be reconciled?," Ecological Economics, Elsevier, vol. 91(C), pages 89-97.
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Cited by:
  1. Rotillon, Gilles & Jouvet, Pierre-André & Bréchet, Thierry, 2013. "Tradable pollution permits in dynamic general equilibrium: Can optimality and acceptability be reconciled?," Economics Papers from University Paris Dauphine 123456789/12953, Paris Dauphine University.

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