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Are Pollution Permits a Cure for Unregulated Growth Diseases ?

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Listed:
  • Alain Jean-Marie
  • Philippe Fabien Prieur
  • Philippe Mabel Tidball

Abstract

We consider an OLG model with emissions arising from production and potential irreversible pollution. Pollution control goes through a system of permits and private agents can also maintain the environment. In this setting, we prove that there exist multiple equilibria. Due to the possible irreversibility of pollution, the economy can be dragged into both environmental and poverty traps. First, we show that choosing a global quota on emissions at the lowest level beyond a critical threshold is a means to avoid the two types of traps. Next, we analyze the impact of a political reform on other equilibria. When the agents do not engage in maintenance, a fall in the quota implies a reduction of pollution but is detrimental to capital accumulation while, in the other case, it procures a double dividend.

Suggested Citation

  • Alain Jean-Marie & Philippe Fabien Prieur & Philippe Mabel Tidball, 2007. "Are Pollution Permits a Cure for Unregulated Growth Diseases ?," Working Papers 07-11, LAMETA, Universtiy of Montpellier, revised Oct 2007.
  • Handle: RePEc:lam:wpaper:07-11
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    File URL: http://www.lameta.univ-montp1.fr/Documents/DR2007-11.pdf
    File Function: First version, 2007
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    References listed on IDEAS

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    1. Fabien Prieur, 2009. "The environmental Kuznets curve in a world of irreversibility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(1), pages 57-90, July.
    2. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
    3. John, A. & Pecchenino, R. & Schimmelpfennig, D. & Schreft, S., 1995. "Short-lived agents and the long-lived environment," Journal of Public Economics, Elsevier, vol. 58(1), pages 127-141, September.
    4. Tahvonen, Olli & Withagen, Cees, 1996. "Optimality of irreversible pollution accumulation," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1775-1795.
    5. Jouvet, Pierre-Andre & Michel, Philippe & Rotillon, Gilles, 2005. "Optimal growth with pollution: how to use pollution permits?," Journal of Economic Dynamics and Control, Elsevier, vol. 29(9), pages 1597-1609, September.
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