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Productivity Dispersion across Plants, Emission Abatement, and Environmental Policy

  • Li, Zhe
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Empirical studies suggest systematic relationships between plant’s productivity and plant’s emissions and emission-abatement costs. This paper demonstrates that productivity dispersion across plants is an important factor that influences the transmission of environmental policy. Within a general equilibrium framework, I model heterogeneous polluting plants by allowing them to be differing in productivity and to choose optimally a discrete emission-reduction technology taking into account both the costs of reducing emissions and the competition in the goods market. An emission-reduction policy affects the distribution of plants with the advanced abatement technology and relocates resources and market shares across plants. As a result, the aggregate effects of an environmental policy depend on the degree of productivity dispersion. Using Canadian data, I show quantitatively that the aggregate effects of an environmental policy significantly affected by the degree of productivity dispersion both in the transition periods and in the long-run steady-state equilibrium.

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File URL: http://mpra.ub.uni-muenchen.de/9564/1/MPRA_paper_9564.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9564.

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Date of creation: 14 Sep 2008
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Handle: RePEc:pra:mprapa:9564
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