Productivity Dispersion across Plants, Emission Abatement, and Environmental Policy

Li, Zhe (2008): Productivity Dispersion across Plants, Emission Abatement, and Environmental Policy.

Abstract

Empirical studies suggest systematic relationships between plant’s productivity and plant’s emissions and emission-abatement costs. This paper demonstrates that productivity dispersion across plants is an important factor that influences the transmission of environmental policy. Within a general equilibrium framework, I model heterogeneous polluting plants by allowing them to be differing in productivity and to choose optimally a discrete emission-reduction technology taking into account both the costs of reducing emissions and the competition in the goods market. An emission-reduction policy affects the distribution of plants with the advanced abatement technology and relocates resources and market shares across plants. As a result, the aggregate effects of an environmental policy depend on the degree of productivity dispersion. Using Canadian data, I show quantitatively that the aggregate effects of an environmental policy significantly affected by the degree of productivity dispersion both in the transition periods and in the long-run steady-state equilibrium.

• Item Type: MPRA Paper
• Language: English
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q52 - Pollution Control Adoption and Costs ; Distributional Effects ; Employment Effects; E - Macroeconomics and Monetary Economics > E0 - General > E00 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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