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Emission Targets and Equilibrium Choice of Technique

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  • Martin Diedrich

    (Department of Economics Keele University)

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 counterexamples 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.

Suggested Citation

  • Martin Diedrich, 2002. "Emission Targets and Equilibrium Choice of Technique," Keele Economics Research Papers KERP 2002/12, Centre for Economic Research, Keele University.
    • Handle: RePEc:kee:kerpuk:2002/12
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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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