Environmental problems used typically to be on the fringe of economic policy making, and received only passing reference in economic analysis. But increasingly today, environmental protection and environmental pollution analysis are entering more directly into economic cost and benefit calculations. The environment is positively or negatively affected by different economic activities in varying degrees, and environmental damage may have a significant impact on the economy when it is measured rigorously. If environmental protection is taken up it increases the costs directly in many industries and these are passed on to their users in varying degrees. In a developed country, where industries are most often mature and have fairly strong foundation, this increase in costs has less impact than on industries in developing economies, where some weak industries may be priced out of the market due to the high price impact of environmental protection on them. This results, in practical terms, either in the destruction of some industries causing higher environmental damage or in a retardation of growth, as traditionally measured, and employment. But at the same time it is increasingly being felt in developing countries that environmental effects have to be duly incorporated into the economic development process. This paper is an attempt to investigate this aspect of the problem in a general equilibrium frame-work.
Previous general equilibrium treatments of environmental pollution problems (Leontief (1970); Leontief and Ford 0972); Cumberland and Strata (1974)) have dwelt on aspects of generation of environmental pollution and its measure through input-output or similar techniques. Thus, Leontief considers the pollution generation activity within an inputoutput framework. Cumberland (1972) dwells on tracing waste through treatment processes, the possibility of recycling and of alternate processes to substitute for polluting ones. In Cumberland and Strata (1974) residual wastes from various activities and alternative technical options are considered. A cost-benefit approach of various activities is considered on the basis of cost functions of treatment of wastes, and appropriate policy measures are considered.
In the present paper a somewhat different approach to environmental policy is suggested. This approach consists of estimating the cost of environmental protection as a proportion of the prices of output for sectors in a general input-output framework. This approach to estimation of sectoral cost coefficients has been tried out successfully in Economic and Social Commission for Asia and the Pacific (ESCAP) United Nations investigations reported in publications on environment and development in various industries in South East Asia (1982). Thus, in the tanning industry it is found that 'Effluent treatment incorporating *The author wishes to acknowledge the helpful comments of an anonymous referee. +Jadavpur University.