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Optimal pollution trading without pollution reductions: a note

Author

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  • Jorge H. García
  • Matthew T. Heberling
  • Hale W. Thurston

Abstract

Many kinds of water pollution occur in pulses, e.g., agricultural and urban runoff. Ecosystems, such as wetlands, can serve to regulate these pulses and smooth pollution distributions over time. This smoothing reduces total environmental damages when the instantaneous" damage function is convex. This paper introduces a water quality trading model between a farm (a pulse-pollution source) and a firm (a more steady pollution source) where the object of exchange is the `temporary´ retention of runoff as opposed to total runoff reductions. The optimal trading ratio requires firm emissions to be offset by more than a proportional retention of the initial agricultural runoff pulse. The reason is twofold: a) emissions are steady over time and -in this sense- have relatively larger environmental impact, and b) certain kinds of runoff management cause otherwise inexistent delayed environmental damages. "

Suggested Citation

  • Jorge H. García & Matthew T. Heberling & Hale W. Thurston, 2010. "Optimal pollution trading without pollution reductions: a note," Vniversitas Económica 8292, Universidad Javeriana - Bogotá.
    • Handle: RePEc:col:000416:008292
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    File URL: http://cea.javeriana.edu.co/documents/153049/2786252/Vol.10_5_2010.pdf/2d07468c-409a-494b-accc-91025c3284d6
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    More about this item

    Keywords

    water quality trading; flow pollution; wetlands; trading ratio;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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