Nonlinear Production, Abatement, Pollution and Materials Balance Reconsidered

31 Pages Posted: 24 Oct 2005

See all articles by Rudiger Pethig

Rudiger Pethig

University of Siegen - School of Economic Disciplines; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 2005

Abstract

In the environmental economics literature the standard approach of modeling nonlinear production and abatement processes is to treat waste emissions "simply as another factor of production" (Cropper and Oates 1992). That approach doesn't map the materials flow involved completely and hides, moreover, the exact links between production, residuals generation and abatement. This paper shows that production functions with emissions treated as inputs can be reconstructed as a subsystem of a comprehensive production-cum-abatement technology that is in line with the materials-balance principle. In a simple economy with full regard of the materials flow it also explores the consequences for allocative efficiency and efficiency-restoring taxation of multiple and interdependent residuals generated in the transformation processes of production, abatement and consumption. Finally, the paper demonstrates that efficiency may require setting the emissions tax rate above or below conventionally defined marginal abatement cost if the residual subject to abatement is not the only residual causing pollution.

Keywords: residuals, abatement, pollution, materials balance

JEL Classification: Q50, Q52

Suggested Citation

Pethig, Rudiger, Nonlinear Production, Abatement, Pollution and Materials Balance Reconsidered (September 2005). CESifo Working Paper Series No. 1549, Available at SSRN: https://ssrn.com/abstract=833005 or http://dx.doi.org/10.2139/ssrn.833005

Rudiger Pethig (Contact Author)

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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