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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.

Suggested Citation

  • Martin E. Diedrich, 2002. "Emission Targets and Equilibrium Choice of Technique," GE, Growth, Math methods 0211001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpge:0211001
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    References listed on IDEAS

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    1. Christian Bidard & Guido Erreygers, 1998. "The Adjustment Property," Economic Systems Research, Taylor & Francis Journals, vol. 10(1), pages 3-18.
    2. Coggins, Jay S. & Swinton, John R., 1996. "The Price of Pollution: A Dual Approach to Valuing SO2Allowances," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 58-72, January.
    3. Ekins, Paul & Barker, Terry, 2001. " Carbon Taxes and Carbon Emissions Trading," Journal of Economic Surveys, Wiley Blackwell, vol. 15(3), pages 325-376, July.
    4. 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.
    5. J. H. Dales, 1968. "Land, Water, and Ownership," Canadian Journal of Economics, Canadian Economics Association, vol. 1(4), pages 791-804, November.
    6. 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.
    7. Kurz, Mordecai, 1969. "Tightness and substitution in the theory of capital," Journal of Economic Theory, Elsevier, vol. 1(3), pages 244-272, October.
    8. Bidard, Christian, 1990. "An Algorithmic Theory of the Choice of Techniques," Econometrica, Econometric Society, vol. 58(4), pages 839-859, July.
    9. Steenge, Albert E, 1978. "Environmental Repercussions and the Economic Structure: Further Comments," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 482-486, August.
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    More about this item

    Keywords

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

    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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