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A Holistic View of Trade, Pollution Permits and Abatement

  • Hamid Beladi

    (University of Texas at San Antonio)

  • Lu Liu

    (Southwestern University of Finance and Economics, China)

  • Reza Oladi

    (Department of Applied Economics)

Registered author(s):

    By constructing a dynamic general equilibrium model this paper studies the optimal pollution emission and abatement policies for a small economy. We show that in autarky government issues an optimal level of emission permits but its optimal abatement level is zero at the unique steady- state equilibrium. On the other hand, government employs an optimal two-dimensional policy with free trade if the country is an exporter of a pollution intensive good. That is, government issues pollution permits (thus controls the emission level) while it undertakes a positive level of abatement activity. In other words, an optimal combination of emission cap and pollution abatement is required for a small trading economy with comparative advantage in dirty goods.

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    File URL: http://business.utsa.edu/wps/eco/0002ECO-414-2011.pdf
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    Paper provided by College of Business, University of Texas at San Antonio in its series Working Papers with number 0002.

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    Length: 23 pages
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    Handle: RePEc:tsa:wpaper:0002
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