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A Holistic View of Trade, Pollution Permits and Abatement

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Author Info

  • Hamid Beladi

    (University of Texas at San Antonio)

  • Lu Liu

    (Southwestern University of Finance and Economics, China)

  • Reza Oladi

    (Department of Applied Economics)

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    Abstract

    By constructing a dynamic general equilibrium model this paper studies the optimal pollution emission and abatement policies for a small economy. We show that in autarky government issues an optimal level of emission permits but its optimal abatement level is zero at the unique steady- state equilibrium. On the other hand, government employs an optimal two-dimensional policy with free trade if the country is an exporter of a pollution intensive good. That is, government issues pollution permits (thus controls the emission level) while it undertakes a positive level of abatement activity. In other words, an optimal combination of emission cap and pollution abatement is required for a small trading economy with comparative advantage in dirty goods.

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    File URL: http://business.utsa.edu/wps/eco/0002ECO-414-2011.pdf
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    Bibliographic Info

    Paper provided by College of Business, University of Texas at San Antonio in its series Working Papers with number 0002.

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    Length: 23 pages
    Date of creation:
    Date of revision:
    Handle: RePEc:tsa:wpaper:0002

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    Keywords: Pollution permits; abatement; international trade;

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    References

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