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The timing of pollution abatement investments and the business cycle: an international comparison

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  • Bouman, M.

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Gautier, P. A.
  • Hofkes, M.W.

Abstract

In this paper we develop a simple equilibrium business-cycle model for an economy with both clean-and dirty-producing plants. We derive that the optimal timing of cleaning the production process is during a slowdown of the economy. Due to external effects and market failures the timing of pollution abatement investments is not expected to be optimal in the real world. We test the optimality of the timing of those investments with data for Germany, the Netherlands and the U.S.A. It appears that for more than 25 percent of the sectors pollution abatement investments show counter-cyclical behaviour, while in only one sector these investments are pro-cyclical.

Suggested Citation

  • Bouman, M. & Gautier, P. A. & Hofkes, M.W., 1995. "The timing of pollution abatement investments and the business cycle: an international comparison," Serie Research Memoranda 0033, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    • Handle: RePEc:vua:wpaper:1995-33
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    References listed on IDEAS

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    3. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186, National Bureau of Economic Research, Inc.
    4. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231.
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