A dynamic general equilibrium model of pollution abatement under learning by doing

In 2013, Beladi et al. constructed a dynamic general equilibrium model of pollution, and characterized a steady-state equilibrium. In this paper, we extend Beladi et al.’s model to an even more general model in which the pollution abatement costs under learning by doing are taken into account. In our model, the instantaneous abatement costs depend on both the rate of abatement and the experience of using a technology. Our objective is to apply optimal control theory to investigate the dynamic general equilibrium model of pollution abatement, and derive the steady-state equilibrium properties and optimal levels of emission permits and pollution treatment.     

Dynamic optimal control of pollution abatement under emissions permit banking

In a recent work, Dragone et al. (2010) modeled an optimal control model of pollution abatement, and investigated the adoption of a tax levied on the firm's instantaneous contribution to the accumulation of pollution. In this paper, we extend the work of Dragone et al. (2010) by providing a dynamic optimal control model of pollution abatement with emissions permits banking, where the firm is allowed to purchase, sell and bank emissions permits given a finite planning horizon of length. Our objective is to find the optimal levels of the production, the pollution abatement investment and the quantity of emissions permits bought or sold in continuous time through the use of optimal control theory. We illustrate the results with a numerical example.     

Time-consistent protection with learning by doing

Can a government induce efficiency gains in his domestic industry by protecting it against foreign competition? Would such trade protection be time consistent? The present paper builds a dynamic equilibrium model that accounts for learning-by-doing effects that link firms’ strategies over time. The model shows that the existence of dynamic economies of scale suffices to overcome the traditional government's lack of commitment of its tariff policy. This paper compares the infinite horizon Markov perfect equilibrium of this game with the dynamic equilibrium under commitment as well as the static Nash equilibrium. Equilibrium strategies are derived in closed form by solving a linear-quadratic differential game. Optimal trade policy involves higher tariff levels than in the static setup in order to account for future gains in efficiency. Under reasonable assumptions, the unique stable MPE is characterized by a domestic price and tariff that decrease as experience accumulates, thus supporting the future liberalization of trade as an equilibrium feature of this dynamic game.     

Cross-border pollution abatement and its synergy

The present study shows that in the case of cross-border pollution between two neighbouring jurisdictions, residents in each jurisdiction should undertake a competitive pollution abatement program. The present study considers an economy comprising two homogeneous regions, with each regional government competing to provide some local public good that can benefit not only the regions supplying them but also the other neighbouring regions. This study investigated the circumstances under which such regional spillovers mutually arise by comparing cases without spillover effects with those featuring varying levels of spillovers. The study result indicates that regions exhibiting a different levels of spillover provide higher welfare measures than those without spillover and that the higher the level of spillover the greater the social welfare measures yielded. The study also compares cases without synergy effects with those featuring varying levels of spillover.     

Cost-effectiveness of air pollution abatement in Poland

The aim of the paper is to discuss the concept of cost-effectiveness of national air pollution abatement programmes, analyze it from a region-wide perspective, and outline a framework for integrating international and domestic environmental priorities. The paper refers to air protection policy priorities adopted by the government of Poland in 1990, and reviews policy instruments envisaged for their implementation. Additionally, it discusses international priorities and how the government of Poland attempts to address these in its policy.After defining cost-effectiveness, this paper reviews how the choice of policy instruments influences the costs of pollution control policy. Then, the recent Polish experience with charges, environmental funds, and transferable permits is confronted with the cost-effectiveness principles. The paper concludes that Poland has developed an extensive system of pollution fees which serves a revenue-raising purpose and gives modest incentives to abate, although the cost-effectiveness of this mechanism needs improvement. A potential role for transferable permits is emphasized.     

On modeling incentive systems which utilize pollution charges for pollution abatement

This paper examines a scheme of economic incentives for environmental protection, in which spatially differentiated pollution taxes are in use in compensating the pollution abatement costs. A simple mathematical model is described which determines an incentive system that encourages polluters to reduce the discharges to an acceptable level of ambient quality standards in a cost-effective manner. It is shown that the vector of pollution charges has to be proportional to the marginal abatement cost vector, but is smaller than the latter in magnitude. It is demonstrated that a necessary incentive effect may be achieved even if the total pollution charge is much lower (about three times) than the total abatement costs. It is also estimated how this charge incentive system reconciles conflicting criteria of cost-effectiveness and of equity. These conclusions are verified by numerical experiments with real data.     

Monopoly versus competition: The learning by doing case

This paper studies the monopolistic and perfect competitive market structures, where the production process incorporates learning by doing. This analysis provides conditions under which monopoly is preferred to perfect competition from the consumers' point of view.     

Financial markets, specialization, and learning by doing

This paper considers three questions: (1) what is the role of financial markets in development, (2) why do some economies have such poorly developed financial markets, and (3) can government policy be used to promote financial market development? With respect to the first question, we formalize the widely-held notion that financial markets promote entrepreneurship, specialization, and learning-by-doing. However, if economic incentives for specialization are absent, financial markets may fail to form. This occurs when real interest rates are too low. We also discuss policies that can be used to promote financial market development. When these policies are successful, they will be growth promoting. Finally, we examine policies intended to manipulate returns on savings, which are often important components of “financial liberalizations”. We describe conditions under which such policies will be conducive to growth.     

Water pollution abatement by Chinese industry: cost estimates and policy implications

Factory-level data are used to estimate water pollution abatement costs for Chinese industry. Joint abatement cost functions are utilized which relate total costs to treatment volume and the simultaneous effect of reductions in suspended solids, chemical oxygen demand, biological oxygen demand and other pollutants. Tests of alternative functional forms suggest that a very simple (constant elasticity) model fits the data as well as a complex (translog) model, permitting sophisticated policy experiments with relatively simple calculations. From the results, the cost-effectiveness of current pollution control policy in China is analysed. Basic conclusions are (1) The benefits of stricter discharge standards should be weighed carefully against the costs. For the sample of 260 factories, a shift across the existing range of standards entails a present-value difference of US$330 million in abatement costs. (2) Emissions charges as low as US$1.00/ton would be sufficient to induce 80% abatement of suspended solids for cost-minimizing factories. Charges of US$3, US$15 and US$30 per ton would be sufficient to induce 90% abatement of TSS, COD and BOD. (3) The current regulatory system provides an economic incentive to abate by charging a levy on pollution in excess of the standard. However, the results suggest that changing to a full emissions charge system would greatly reduce overall abatement costs. For the 260 factories in the sample, the current overall abatement rate could be attained under a charge system at a reduced annual cost whose present value is US$344 million.     

Dynamic modelling of pollution abatement in a CGE framework

This paper deals with the specification of pollution abatement in dynamic computable general equilibrium (CGE) models and analyses the dynamic feedback mechanisms between economy and abatement in the context of environmental policy. A Ramsey-type economic model is presented, in which bottom-up technical and economic information on abatement techniques is integrated in a top-down dynamic CGE context. The practical suitability of the specification is illustrated by an empirical application for climate change and acidification in the Netherlands. The results show that a mixture of some slowdown of economic growth, a substantial restructuring of the economy and implementation of most technical abatement measures is optimal.     

Environmental innovation and the cost of pollution abatement revisited

It is widely assumed in the literature that environmental innovation reduces the marginal cost of pollution abatement. In this paper we show that this is not necessarily the case and we provide some unexpected outcomes.     

Endogenous growth cycles—Arrow's learning by doing reconsidered

A two-sector growth model is presented in which human capital is acquired through learning by doing. It is shown that, for both the competitive situation and the social optimum, endogenous growth cycles may be the outcome. Concerning the economic prerequisite for persistent oscillations we detect a bunching of investment at nearby dates leading economic variables to overshoot the long-run steady state values. This clustering of investment, for its part, may be caused by adjacent complementarity with respect to the stocks or by a sufficiently strong external effect of investment on the marginal product of physical capital or on the opportunity costs of investment.     

Schumpeter's circular flow,learning by doing and cyclical growth

A two-sector growth model with endogenous technical change is presented. Concerning technical change, we assume that it is reflected by increases in the stock of human capital which are acquired through learning by doing. As a result, it turns out that transitory or, using the Hopf bifurcation theorem, persistent oscillations of the economic variables may be the outcome. Thus we are able to show that learning mechanisms alone may be sufficient to destroy the circular flow as described by Schumpeter.     

Environmental performance and returns to pollution abatement in China

Because of China's extremely rapid economic growth, the scale and seriousness of environmental problems is no longer in doubt. Whether pollution abatement technologies are utilized more efficiently is crucial in the analysis of environmental management in China. This study analyzes how the performance of environmental management has changed over time using province level data for 1992-2003. Mixed results for environmental performance are shown using nonparametric estimation technique. We find that environmental performance index, abatement effort, and increasing returns to pollution abatement play important roles in determining the pollution level over the period of the study.     

Learning by not doing: an experimental investigation of observational learning

We present experimental evidence suggesting that observational learning (i.e., learning-by-not-doing but by observing) may outperform learning-by-doing.     

Costly pollution abatement, competitiveness and plant location decisions

The NAFTA debate included assertions that were used as arguments against trade and investment liberalization. (1) Trade liberalization increases production sensitivity to environmental restrictions (‘environmental dumping’?). (2) Investment liberalization, leading to multinational firms, similarly increases the production and welfare response to costly environmental restrictions. I find that: (1) Trade liberalization increases production sensitivity to costly environmental restrictions, but arguments against liberal trade on welfare grounds do not follow. (2) Multinationals do not increase the production-reallocation effect caused by environmental restrictions or regulations. In addition, I find a great difference between restrictions that fall on fixed costs and restrictions that fall on marginal costs.     

Why environmental management may yield no-regret pollution abatement options

Empirical evidence supports the existence of pollution abatement possibilities at negative costs, the so-called ‘no-regret options’. We provide a microeconomic rationale for the existence of such potential at the firm level. An econometric application confirms that pollution abatement cost curves with no-regret options are compatible with a standard production function, as stated in our theoretical model.     

Poverty and pollution abatement: Evidence from lead phase-out

An extensive literature suggests that poverty prevents nations from abating many forms of pollution. Considerable research also proposes a competing claim, that poverty delays but does not prevent pollution abatement. Neither position enjoys persuasive empirical support. Data describing the phase-out of leaded gasoline allow for empirical investigation and they support the latter claim—that poverty delays but does not prevent pollution abatement. Many poor nations have solved the problem of vehicular lead pollution and they have tended to follow rich nations in doing so. The phase-out achievements of richer nations have generated much of the ability and will that has enabled poor countries to solve the problem. The pattern of abatement sequencing and its root causes present important implications for environmental policy and research.     

The Dutch disease revisited: absorption constraint and learning by doing

This paper revisits the Dutch disease by analyzing the general equilibrium effects of a resource shock on a dependent economy, both in a static and dynamic setting. The novel aspect of this study is to incorporate in one coherent framework two distinct features of the Dutch disease literature that have previously been analyzed in isolation: capital accumulation with absorption constraint, and productivity growth induced by learning-by-doing. The result of long run exchange rate appreciation is maintained in line with part of the Dutch Disease literature. In addition, a permanent change in the employment shares occurs after the resource windfall, in favor of the non-traded sector and away from the traded sector growth engine of the economy. In other words, in the long run both of the classic symptoms of the Dutch Disease remain in place.