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Emission Targets and Equilibrium Choice of Technique

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  • Martin E. Diedrich

Abstract

We study the technological pre-conditions for a cost-minimizing choice of technique in the presence of government emission targets on by- products of production. Whether a by-product is a desirable commodity or an undesirable pollutant is determined endogeneously as part of the price-quantity equilibrium solution. Non-trivial counter-examples highlight the potential risk of over-ambitious pollution targets. We show that pollution targets can be supported by the appropriate taxes providing that technology allows for a certain type of labour-intensive pollution abatement activities. Our proof is constructive: the tax equilibria we posit can be computed by the Lemke Complementary Pivoting Algorithm.

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File URL: http://econwpa.repec.org/eps/ge/papers/0211/0211001.pdf
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Paper provided by EconWPA in its series GE, Growth, Math methods with number 0211001.

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Length: 38 pages
Date of creation: 05 Nov 2002
Date of revision:
Handle: RePEc:wpa:wuwpge:0211001
Note: Type of Document - pdf; prepared on pc; pages: 38
Contact details of provider: Web page: http://econwpa.repec.org

Keywords: Multisectoral Growth Theory; Choice of Technique; Pollution Taxes; Permit Markets; Lemke Algorithm;

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Find related papers by JEL classification:
  • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
  • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
  • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
  • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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  1. Dantzig, George B. & Manne, Alan S., 1974. "A complementarity algorithm for an optimal capital path with invariant proportions," Journal of Economic Theory, Elsevier, vol. 9(3), pages 312-323, November.
  2. Christian Bidard & Guido Erreygers, 1998. "The Adjustment Property," Economic Systems Research, Taylor & Francis Journals, vol. 10(1), pages 3-18.
  3. Steenge, Albert E, 1978. "Environmental Repercussions and the Economic Structure: Further Comments," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 482-86, August.
  4. Kurz, Mordecai, 1969. "Tightness and substitution in the theory of capital," Journal of Economic Theory, Elsevier, vol. 1(3), pages 244-272, October.
  5. Elizabeth Symons & John Proops & Philip Gay, 1994. "Carbon taxes, consumer demand and carbon dioxide emissions: a simulation analysis for the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 15(2), pages 19-43, May.
  6. JAY S. COGGINS & John R. Swinton, 1994. "The Price of Pollution: A Dual Approach to Valuing SO2 Allowances," Wisconsin-Madison Agricultural and Applied Economics Staff Papers 378, Wisconsin-Madison Agricultural and Applied Economics Department.
  7. J. H. Dales, 1968. "Land, Water, and Ownership," Canadian Journal of Economics, Canadian Economics Association, vol. 1(4), pages 791-804, November.
  8. Ekins, Paul & Barker, Terry, 2001. " Carbon Taxes and Carbon Emissions Trading," Journal of Economic Surveys, Wiley Blackwell, vol. 15(3), pages 325-76, July.
  9. Bidard, Christian, 1990. "An Algorithmic Theory of the Choice of Techniques," Econometrica, Econometric Society, vol. 58(4), pages 839-59, July.
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