Emission Targets and Equilibrium Choice of Technique

Martin Diedrich

No KERP 2002/12, Keele Economics Research Papers from Centre for Economic Research, Keele University

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 counterexamples 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.

Keywords: Multisectoral Growth Theory; Choice of Technique; Pollution Taxes; Permit Markets; Lemke Algorithm (search for similar items in EconPapers)
JEL-codes: C61 D57 O33 Q38 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2002-09
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Working Paper: Emission Targets and Equilibrium Choice of Technique (2002)
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