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Prices, Politics and Persuasion: The Case of Pollution Control and Clean Technology Adoption

  • Wenli Cheng
  • Dingsheng Zhang
  • CEMA, Central University of Finance and Economics

This paper presents three simple models to study how prices, politics and persuasion may each play a role in environmental policymaking. Our conclusions are twofold. First, in the absence of increasing returns, requiring the polluting industry to purchase pollution permits can internalize the negative externality of pollution, and the optimal price of pollution permits should increase with the disutility of pollution. Second, with increasing returns in the industry using clean technologies, it is welfare enhancing to complement the pollution permits policy with a tax-funded subsidy to the clean industry, or with a tax-funded public campaign to persuade consumers to move away from the pollution generating goods.

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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 26-13.

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Length: 18 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:mos:moswps:2013-26
Contact details of provider: Postal: Department of Economics, Monash University, Victoria 3800, Australia
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