A Holistic View of Trade, Pollution Permits and Abatement A Holistic View of Trade, Pollution Permits and Abatement
نویسندگان
چکیده
By constructing a dynamic general equilibrium model this paper studies the optimal pollution emission and abatement policies for a small economy. We show that in autarky government issues an optimal level of emission permits but its optimal abatement level is zero at the unique steadystate equilibrium. On the other hand, government employs an optimal two-dimensional policy with free trade if the country is an exporter of a pollution intensive good. That is, government issues pollution permits (thus controls the emission level) while it undertakes a positive level of abatement activity. In other words, an optimal combination of emission cap and pollution abatement is required for a small trading economy with comparative advantage in dirty goods. JEL: F1, Q5
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