Accumulative Pollution, 'Clean Technology,' and Policy Design

Posted: 29 Mar 2001

See all articles by Michael Toman

Michael Toman

World Bank - Development Research Group (DECRG)

Cees Withagen

Free University of Amsterdam; Tilburg University

Abstract

This paper addresses the optimal long-term management of an accumulative but assimilable pollutant through economic incentive policies that restrict more damaging production processes and induce more benign alternatives. Using a simple general equilibrium approach, we consider the possibility that the assimilative capacity of the environment is eventually exhausted by pollution accumulation. In this case, there is a nonconvexity in the problem that gives rise to multiple potential optima; environmental quality may be preserved or completely degraded in the long term. We characterize the circumstances under which phasing out dirty production is consistent with an intertemporally optimizing path and we discuss the design of price-based and quantity-based policies for supporting an optimal solution with the nonconvexity.

Keywords: stock externalities, nonconvexities, sustainable development

JEL Classification: Q20, Q28, D62

Suggested Citation

Toman, Michael and Withagen, Cees A. M., Accumulative Pollution, 'Clean Technology,' and Policy Design. Resource and Energy Economics, Vol. 22, Issue 4, October 2000. Available at SSRN: https://ssrn.com/abstract=252783

Michael Toman (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street N.W.
MSN3-311
Washington, DC 20433
United States

Cees A. M. Withagen

Free University of Amsterdam ( email )

Tinbergen Institute De Boelelaan 1105
1081 HV Amsterdam
Netherlands

Tilburg University ( email )

Postbus 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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