A Consistent Formulation of the Leontief Pollution Model

Mikulas Luptacik and Bernhard Bohm

Economic Systems Research, 1999, vol. 11, issue 3, 263-276

Abstract: We consider the environmental Leontief model, which is an input-output model augmented by pollution-generation and pollution-abatement sectors. Two formulations of this model, dating back to Leontief's work in 1970, can be found in the literature. One formulation treats an exogenously given vector of the tolerated level of pollutants (environmental standards) as a negative variable on the right-hand side of the model. The other formulation supposes that each industry eliminates a given proportion of the pollution that it creates, so that the proportions of gross pollutants which are subject to treatment by each sector enter as given parameters. Even in the case when the levels of production and abatement in the two different model formulations are equal, the solutions of the dual or price model are different for cases where some net pollution is left untreated. First, the analytical relationship between the two price models is established. Secondly, both models formulated in a linear programming framework are extended by imposing emission charges (effluent taxes) for untreated pollution. Finally, it will be shown how to estimate the level of emission charges for both model formulations such that they provide the same levels of production and abatement, as well as the same shadow prices. This is illustrated by a numerical example.

Keywords: Environmental standards; emission charges; linear programming; shadow prices (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (9)

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DOI: 10.1080/09535319900000018

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