A Stochastic Optimal Control Model of Pollution Abatement

Davide Dragone, Luca Lambertini (), G. Leitmann and Arsen Palestini ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: We model a dynamic monopoly with environmental externalities,investigating the adoption of a tax levied on the firm's instantaneous contribution to the accumulation of pollution. The latter process is subject to a shock, which is i.i.d. across instants. We prove the existence of an optimal tax rate such that the monopoly replicates the same steady state welfare level as under social planning. Yet, the corresponding output level, R&D investment for environmental friendly technologies and surplus distribution necessarily differ from the socially optimal ones.

JEL-codes: C61 H21 H23 Q52 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:681

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