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Environmental Externality on Production in an OLG Economy

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  • Hiroshi Danbara

    (Graduate School of Economics, Keio University)

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    Abstract

    In this paper, we introduce the environmental externality into the Diamond (1965) model. The environmental externality affects on the production negatively. We define a socially optimal allocation and a competitive equilibrium, and obtain the first-order necessary conditions. In competitive equilibrium, both consumers and firms have no incentives to maintain the environment, hence competitive equilibrium allocation can not be socially optimal. Therefore we propose a tax scheme. Our model requires two types of taxes in order to achieve a social optimum.

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    File URL: http://ies.keio.ac.jp/old_project/old/gcoe-econbus/pdf/dp/DP2012-045.pdf
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    Bibliographic Info

    Paper provided by Keio/Kyoto Joint Global COE Program in its series Keio/Kyoto Joint Global COE Discussion Paper Series with number 2012-045.

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    Length: 7 pages
    Date of creation: Mar 2013
    Date of revision:
    Handle: RePEc:kei:dpaper:2012-045

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    Web page: http://ies.keio.ac.jp/old_project/old/gcoe-econbus/
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    1. John, A & Pecchenino, R, 1994. "An Overlapping Generations Model of Growth and the Environment," Economic Journal, Royal Economic Society, vol. 104(427), pages 1393-1410, November.
    2. Jouvet, P.-A. & Michel, P. & Vidal, J.-P., 1999. "Intergenerational Altruism and the Environment," G.R.E.Q.A.M. 99a03, Universite Aix-Marseille III.
    3. Michel, Philippe & Thibault, Emmanuel & Vidal, Jean-Pierre, 2006. "Intergenerational altruism and neoclassical growth models," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    4. Prieur, Fabien & Jean-Marie, Alain & Tidball, Mabel, 2013. "Growth And Irreversible Pollution: Are Emission Permits A Means Of Avoiding Environmental And Poverty Traps?," Macroeconomic Dynamics, Cambridge University Press, vol. 17(02), pages 261-293, March.
    5. 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.
    6. Batina, Raymond G. & Ihori, Toshihiro, 2000. "Consumption Tax Policy and the Taxation of Capital Income," OUP Catalogue, Oxford University Press, number 9780198297901, September.
    7. John, A. & Pecchenino, R. & Schimmelpfennig, D. & Schreft, S., 1995. "Short-lived agents and the long-lived environment," Journal of Public Economics, Elsevier, vol. 58(1), pages 127-141, September.
    8. Ono, Tetsuo, 1996. "Optimal tax schemes and the environmental externality," Economics Letters, Elsevier, vol. 53(3), pages 283-289, December.
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