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Emission Targets and Equilibrium Choice of Technique

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  • Martin E. Diedrich

Abstract

We study the technological pre-conditions for a cost-minimizing choice of technique in the presence of government emission targets on by- products of production. Whether a by-product is a desirable commodity or an undesirable pollutant is determined endogeneously as part of the price-quantity equilibrium solution. Non-trivial counter-examples highlight the potential risk of over-ambitious pollution targets. We show that pollution targets can be supported by the appropriate taxes providing that technology allows for a certain type of labour-intensive pollution abatement activities. Our proof is constructive: the tax equilibria we posit can be computed by the Lemke Complementary Pivoting Algorithm.

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Bibliographic Info

Paper provided by EconWPA in its series GE, Growth, Math methods with number 0211001.

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Length: 38 pages
Date of creation: 05 Nov 2002
Date of revision:
Handle: RePEc:wpa:wuwpge:0211001

Note: Type of Document - pdf; prepared on pc; pages: 38
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Web page: http://128.118.178.162

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Keywords: Multisectoral Growth Theory; Choice of Technique; Pollution Taxes; Permit Markets; Lemke Algorithm;

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  1. Coggins, Jay S. & Swinton, John R., 1996. "The Price of Pollution: A Dual Approach to Valuing SO2Allowances," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 58-72, January.
  2. Dantzig, George B. & Manne, Alan S., 1974. "A complementarity algorithm for an optimal capital path with invariant proportions," Journal of Economic Theory, Elsevier, vol. 9(3), pages 312-323, November.
  3. J. H. Dales, 1968. "Land, Water, and Ownership," Canadian Journal of Economics, Canadian Economics Association, vol. 1(4), pages 791-804, November.
  4. Steenge, Albert E, 1978. "Environmental Repercussions and the Economic Structure: Further Comments," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 482-86, August.
  5. Christian Bidard & Guido Erreygers, 1998. "The Adjustment Property," Economic Systems Research, Taylor & Francis Journals, vol. 10(1), pages 3-18.
  6. Ekins, Paul & Barker, Terry, 2001. " Carbon Taxes and Carbon Emissions Trading," Journal of Economic Surveys, Wiley Blackwell, vol. 15(3), pages 325-76, July.
  7. Elizabeth Symons & John Proops & Philip Gay, 1994. "Carbon taxes, consumer demand and carbon dioxide emissions: a simulation analysis for the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 15(2), pages 19-43, May.
  8. Kurz, Mordecai, 1969. "Tightness and substitution in the theory of capital," Journal of Economic Theory, Elsevier, vol. 1(3), pages 244-272, October.
  9. Bidard, Christian, 1990. "An Algorithmic Theory of the Choice of Techniques," Econometrica, Econometric Society, vol. 58(4), pages 839-59, July.
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