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About polluting eco-industries: optimal provision of abatement goods and Pigouvian fees

Journal: Environmental Economics (Vol.8, No. 3)

Publication Date:

Authors : ; ; ;

Page : 46-61

Keywords : heterogeneous firms; Pigouvian tax; polluting eco-industry; welfare analysis;

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Abstract

In this article, the authors introduce a polluting eco-industry. Depending on the level of damage, there are two optimal equilibria. If the damage is low, one generalizes the usual results of the economic literature to the polluting eco-industry: the dirty firm partially abates their emissions, only efficient eco-industry firms produce and the abatement level increases with the damage. However, very specific results are obtained if the damage is high. In this case, not all efficient eco-industry firms produce. The abatement level and the number of active eco-industry firms both decrease as the damage increases. The authors finally show that a well-designed Pigouvian tax implements these equilibria in a competitive economy.

Last modified: 2018-03-19 23:56:52