Optimal Dynamic Scale and Structure of a Multi-Pollution Economy

33 Pages Posted: 21 Mar 2006 Last revised: 4 Oct 2014

Stefan Baumgärtner

University of Freiburg - Department of Environment and Natural Resources

Frank Joest

University of Heidelberg - Alfred Weber Institute for Economics

Ralph Winkler

University of Bern - Department of Economics; University of Bern - Oeschger Centre for Climate Change Research

Date Written: August 21, 2008

Abstract

We analyze the optimal dynamic scale and structure of a two-sector economy, where each sector produces one consumption good and one specific pollutant. Both pollutants accumulate at different rates to stocks which damage the natural environment. This acts as a dynamic driving force for the economy. Our analysis shows that along the optimal time path (i) the time scale of economic dynamics is mainly determined by the lifetime of pollutants, their instantaneous harmfulness and the discount rate; (ii) economic scale and structure, as well as resulting welfare, may be non-monotonic, and (iii) environmental damage may exhibit an inverted U-shape form. These results raise important questions about the optimal design of environmental policies in a multi-pollution economy. We suggest a system of dynamic Pigouvian emission taxes, each of which should be levied specifically on one particular pollutant. We show that the optimal time path of each tax level is determined by the characteristics not only of that particular pollutant but also of all other pollutants.

Keywords: dynamic economy-environment interaction, multi-pollutant emissions, non-monotonic development, optimal scale, stock pollution, structural change

JEL Classification: Q20, O10, O41

Suggested Citation

Baumgärtner, Stefan and Joest, Frank and Winkler, Ralph, Optimal Dynamic Scale and Structure of a Multi-Pollution Economy (August 21, 2008). Ecological Economics, Vol. 68, No. 4, pp. 1226-1238, 2009. Available at SSRN: https://ssrn.com/abstract=892102

Stefan Baumgärtner (Contact Author)

University of Freiburg - Department of Environment and Natural Resources ( email )

Tennebacher Str. 4
Freiburg, 79106
Germany

HOME PAGE: http://www.ere.uni-freiburg.de

Frank Jöst

University of Heidelberg - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Ralph Winkler

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, 3001
Switzerland
+41 31 631 4508 (Phone)

HOME PAGE: http://www.ralph-winkler.de

University of Bern - Oeschger Centre for Climate Change Research ( email )

Zähringerstrasse 25
Bern, 3012
Switzerland

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