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

  • BRECHET, Thierry

    ()

    (Université catholique de Louvain, CORE and Chair Lhoist Berghmans in Environmental Economics and Management, B-1348 Louvain-la-Neuve, Belgium)

  • JOUVET, Pierre - André

    (EconomiX, Université de Paris Ouest, Nanterre – La Défense, France)

  • ROTILLON, Gilles

    (EconomiX, Université de Paris Ouest, Nanterre – La Défense, France)

In this paper we study the optimal growth path and its decentralization in a two-sector overlapping- generations model with pollution. One sector (power generation) is polluting and the other (final good) is not. Pollution is regulated by tradable emission permits. The issue is 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 provide a policy rule that allows optimality and acceptability to be reconciled.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010056.

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Date of creation: 01 Oct 2010
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Handle: RePEc:cor:louvco:2010056
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  1. BRECHET, Thierry & JOUVET, Pierre-André & ROTILLON, Gilles, . "Tradable pollution permits in dynamic general equilibrium: can optimality and acceptability be reconciled?," CORE Discussion Papers RP 2478, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  15. Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
  16. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-86, November.
  17. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  18. Michel, Philippe, 1990. "Some Clarifications on the Transversality Condition," Econometrica, Econometric Society, vol. 58(3), pages 705-23, May.
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