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Growth and Irreversible Pollution: Are Emission Permits a Means of Avoiding Environmental and Poverty Traps?

Abstract : We consider an OLG model with emissions arising from production and potentially irreversible pollution. Pollution control consists of the assignment of permits to firms; private agents also can abate pollution. In this setting, we prove that multiple equilibria exist. Due to the possible irreversibility of pollution, the economy can be dragged into both environmental and poverty traps. First, we show that choosing an emission quota at the lowest level beyond a critical threshold is a means to avoid these two types of traps. We also prove that when the agents do not engage in maintenance, a reduction of the quota leads to a reduction in pollution but also to slower capital accumulation. In contrast, when agents do engage in maintenance, a reduction of the quota provides a double dividend.
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https://hal.inria.fr/hal-00862922
Contributor : Alain Jean-Marie <>
Submitted on : Tuesday, September 17, 2013 - 6:18:33 PM
Last modification on : Monday, November 30, 2020 - 9:52:08 AM

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Fabien Prieur, Alain Jean-Marie, Mabel Tidball. Growth and Irreversible Pollution: Are Emission Permits a Means of Avoiding Environmental and Poverty Traps?. Macroeconomic Dynamics, Cambridge University Press (CUP), 2013, 17 (2), pp.261-293. ⟨10.1017/s1365100511000113⟩. ⟨hal-00862922⟩

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