Scope of Economic Incentives and Abatement Technologies to Regulate a Natural System's Resilience in a General Equilibrium Model

David Tobón Orozco, Carlos Molina and Carlos Vasco Correa ()

The World Bank Economic Review, 2015, vol. 29, issue suppl_1, S182-S191

Abstract: This paper discusses a general equilibrium model consisting of a productive sector generating externalities on another sector having clean production, and on consumers, affecting the property of resilience of a natural system that feeds the economic system. The scope of efficiency of economic incentives is analyzed simultaneously with production activities in the polluting sector and the use of a pollution abatement technology. Our model predicts a boomerang effect: the polluting sector could find itself in a worse situation in the equilibrium with externalities; this sector initiated the problem, but at the end it is highly affected. In any case, the use of economic incentives helps keep pollution levels to maintain more valuable equilibria of nature.

Date: 2015
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