About Polluting Eco-Industries: Optimal Provision of Abatement Goods and Pigouvian Fees

In this article we introduce a polluting eco-industry. Depending on the level of the damage, we find one of two optimal equilibria. If the damage is low, we generalize the usual results of the economic literature to the polluting eco-industry: the dirty firm partially abates their emissions, only ef...

Full description

Saved in:
Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Sans, Damien, Schwartz, Sonia, Stahn, Hubert
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2014
Online AccessGet full text

Cover

More Information
Summary:In this article we introduce a polluting eco-industry. Depending on the level of the damage, we find one of two optimal equilibria. If the damage is low, we generalize the usual results of the economic literature to the polluting eco-industry: the dirty firm partially abates their emissions, only efficient eco-industry firms produce and the abatement level increases with the damage. However, we obtain very specific results if the damage is high. In this case, not all efficient eco-industry firms produce. The abatement level and the number of active eco-industry firms both decrease as the damage increases. We finally show that a well-designed Pigouvian tax implements these equilibria in a competitive economy.