Optimal consumption and the environment Choosing between ‘clean’ and ‘dirty’ goods

✍ Scribed by Domenico Scalera

• Book ID: 104744361
• Publisher: Springer
• Year: 1996
• Tongue: English
• Weight: 772 KB
• Volume: 7
• Category: Article
• ISSN: 0924-6460
• DOI: 10.1007/bf00369625

✦ Synopsis

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.