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

Author

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

Abstract

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.

Suggested Citation

  • Wenli Cheng & Dingsheng Zhang & CEMA, Central University of Finance and Economics, 2013. "Prices, Politics and Persuasion: The Case of Pollution Control and Clean Technology Adoption," Monash Economics Working Papers 26-13, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2013-26
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2013/index.html
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    Keywords

    pollution permits; increasing returns; advertising;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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