Hostname: page-component-cd9895bd7-jkksz Total loading time: 0 Render date: 2024-12-28T14:45:22.088Z Has data issue: false hasContentIssue false
  • English
  • Français

EMISSION TAXES AND STANDARDS IN A GENERAL EQUILIBRIUM WITH PRODUCTIVITY DISPERSION AND ABATEMENT

Published online by Cambridge University Press:  29 March 2016

Zhe Li  and
Shouyong Shi
Zhe Li*
Affiliation:
Shanghai University of Finance and Economics
Shouyong Shi
Affiliation:
Pennsylvania State University
*
Address correspondence to: Zhe Li, School of Economics and Key Laboratory of Mathematical Economics, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai 200433, China; e-mail: li.zhe@shufe.edu.cn.
Get access Rights & Permissions [Opens in a new window]

Abstract

We incorporate emission into a general equilibrium model with rich dispersion in productivity among monopolistically competitive plants. Emission is modeled as a by-product of goods production. An abatement technology is available to the plants for reducing emission. We compare an emission tax with an emission intensity standard. The tax is shown to dominate the standard in welfare for all values of market power if either productivity is sufficiently dispersed or the abatement technology is not effective. On the other hand, if productivity dispersion is small and the abatement technology is effective, there exists sufficiently strong market power so that the standard will dominate the tax in welfare. Even in the case where the standard unambiguously induces a higher output of dirty goods than the tax, the general equilibrium framework is necessary for ranking the two policies in welfare.

Keywords

Emission Tax and StandardProductivity DispersionAbatement TechnologyGeneral Equilibrium
Type
Articles
Information
Macroeconomic Dynamics , Volume 21 , Issue 8 , December 2017 , pp. 1857 - 1886
Copyright
Copyright © Cambridge University Press 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We are grateful to three referees and an associate editor for valuable comments. An earlier version of this paper has been circulated under the title “Emission Tax or Standard: The Roles of Productivity Dispersion and Abatement.” We have received useful comments from the participants of the Society for Economic Dynamics meeting (2010), the World Congress of the Econometric Society (2010), the Midwest Macro Conference (2010), and the Shanghai Macro Workshop (2010). Li would like to acknowledge financial support by the Shanghai Pujiang Program and the National Science Foundation of China (71203127). Shi would like to acknowledge financial support from the Canada Research Chair, the Bank of Canada Fellowship, the Social Sciences and Humanities Research Council of Canada, and the Pennsylvania State University. The opinions expressed here are the authors' own and do not reflect the views of the Bank of Canada.

References

REFERENCES

Buchanan, James M. (1969) External diseconomies, corrective taxes, and market structure. American Economic Review 59, 174–177.Google Scholar
Eaton, Jonathan and Kortum, Sameul (2002) Technology, geography, and trade. Econometrica 70, 1741–1779.Google Scholar
Fischer, Carolyn and Springborn, Michael (2011) Emissions targets and the real business cycle: Intensity targets versus caps or taxes. Journal of Environmental Economics and Management 62, 352–366.CrossRefGoogle Scholar
Freeman, Jody and Kolstad, Charles D. (2007) Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience. Oxford, UK: Oxford University Press.Google Scholar
Gersbach, Hans and Requate, Till (2004) Emission taxes and optimal refunding schemes. Journal of Public Economics 88, 713–725.Google Scholar
Hepburn, Cameron (2006) Regulation by prices, quantities, or both: A review of instrument choice. Oxford Review of Economic Policy 22, 226–247.Google Scholar
Herzog, Timothy, Baumert, Kevin A., and Pershing, Jonathan (2006) Target Intensity: An Analysis of Greenhouse Gas Intensity Targets. Washington, DC: World Resources Institute.Google Scholar
Holland, Stephen P. (2009) Taxes and Trading versus Intensity Standards: Second-Best Environmental Policies with Incomplete Regulation (Leakage) or Market Power. NBER working paper 15262.Google Scholar
IPCC (Intergovernmental Panel on Climate Change) (2007) Fourth Assessment Report: Climate Change–-Mitigation of Climate Change. Working Group III report.Google Scholar
Kelly, David L. (2005) Price and quantity regulation in general equilibrium. Journal of Economic Theory 125, 36–60.Google Scholar
Laffont, Jean J. (1977) More on prices vs. quantities. Review of Economic Studies 44, 177–182.Google Scholar
Li, Zhe and Shi, Shouyong (2010) Emission Tax or Standard: The Roles of Productivity Dispersion and Abatement. Conference paper 587, Society for Economic Dynamics (https://ideas.repec.org/p/red/sed010/587.html).Google Scholar
Li, Zhe and Sun, Jianfei (2015) Emission taxes and standards in a general equilibrium with entry and exit. Journal of Economic Dynamics and Control 61, 34–60.Google Scholar
Melitz, Marc J. (2003) The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71, 1695–1725.Google Scholar
Melitz, Marc J. and Ottaviano, Gianmarco I.P. (2008) Market size, trade, and productivity. Review of Economic Studies 75, 295–316.Google Scholar
Monnet, Cyril and Temzelides, Ted (2011) Monetary Emissions Trading Mechanisms. Manuscript, University of Bern.Google Scholar
Montero, Juan-Pablo (2005) Pollution markets with imperfectly observed emissions. RAND Journal of Economics 36, 645–660.Google Scholar
Nordhaus, William D. (2007) To tax or not to tax: Alternative approaches to slowing global warming. Review of Environmental Economics and Policy 1, 26–44.Google Scholar
Pautrel, Xavier (2012) Environmental policy, education and growth: A reappraisal when lifetime is finite. Macroeconomic Dynamics 16, 661–685.CrossRefGoogle Scholar
Pizer, William (2005) The case for intensity targets. Climate Policy 5, 455–462.Google Scholar
Pommeret, Aude and Schubert, Katheline (2009) Abatement technology adoption under uncertainty. Macroeconomic Dynamics 13, 493–522.Google Scholar
Prieur, Fabien, Jean-Marie, Alain, and Tidball, Mabel (2013) Growth and irreversible pollution: Are emission permits a means of avoiding environmental and poverty traps? Macroeconomic Dynamics 17, 261–293.Google Scholar
Requate, Till (2005) Environmental Policy under Imperfect Competition—A Survey. Working paper 2005-12, University of Kiel.Google Scholar
Royden, Halsey L. (1988) Real Analysis. New York: Macmillan.Google Scholar
Sadeghzadeh, Javad (2014) The impact of environmental policies on productivity and market competition. Environment and Development Economics 19, 548–565.Google Scholar
Shaffer, Sherrill (1995) Optimal linear taxation of polluting oligopolists. Journal of Regulatory Economics 7, 85–100.Google Scholar
Simpson, Ralph D. (1995) Optimal pollution taxation in a Cournot duopoly. Environmental and Resource Economics 6, 359–369.Google Scholar
Stern, Nicholas (2006) Stern Review on the Economics of Climate Change. London: UK Treasury.Google Scholar
Syverson, Chad (2008) Markets: Ready-mixed concrete. Journal of Economic Perspectives 22, 217–234.Google Scholar
Weitzman, Martin L. (1974) Prices vs quantities. Review of Economic Studies 41, 477–491.Google Scholar
Yohe, Gary W. (1978) Towards a general comparison of price controls and quantity controls under uncertainty. Review of Economic Studies 45, 229–238.CrossRefGoogle Scholar
Young, Leslie and Anderson, James E. (1980) The optimal policies for restricting trade under uncertainty. Review of Economic Studies 47, 927–932.Google Scholar