Environmental Externality on Production in an OLG Economy

Hiroshi Danbara
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Hiroshi Danbara: Graduate School of Economics, Keio University

No 2012-045, Keio/Kyoto Joint Global COE Discussion Paper Series from Keio/Kyoto Joint Global COE Program

Abstract: In this paper, we introduce the environmental externality into the Diamond (1965) model. The environmental externality affects on the production negatively. We define a socially optimal allocation and a competitive equilibrium, and obtain the first-order necessary conditions. In competitive equilibrium, both consumers and firms have no incentives to maintain the environment, hence competitive equilibrium allocation can not be socially optimal. Therefore we propose a tax scheme. Our model requires two types of taxes in order to achieve a social optimum.

Pages: 7 pages
Date: 2013-03
New Economics Papers: this item is included in nep-dge and nep-env
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