Optimal consumption and the environment Choosing between ‘clean’ and ‘dirty’ goods |
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Authors: | Domenico Scalera |
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Institution: | (1) Department of Quantitative Methods and Economic Theory, Universita' di Pescara, Viale Pindaro 42, 65127 Pescara, Italy |
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Abstract: | In this paper, a model with heterogeneous consumption goods is presented. Consumers are assumed to choose between two different consumption goods, characterized by a different impact on the environment. This implies that, in a decentralized economy, government can sustain the social optimum by setting two Pigouvian taxes: one on production as a whole and the other on dirty consumption acting as an incentive in favour of clean consumption. In accordance with the previous literature, a trade-off between a clean environment and economic activity evolves. However, this trade-off is now mitigated by the additional taxation on polluting consumption which allows the control of pollution stock evolution through the substitution between clean and dirty commodities. |
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Keywords: | pollution control Pigouvian taxation heterogeneous consumption goods |
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