Abstract
According to the economic assessment of environmental problems, drawn from the predominant neoclassical theory, the most efficient strategy to improve the environment would be the application of so-called market approaches. Because the environment is economically a public good, this strategy requires the introduction of some environmental taxes (Pigou tax) or tradable pollution certificates. If the tax rate is fixed according to the marginal abatement costs, or if the number of pollution certificates corresponds to the socially optimal emission standard, these instruments allow the economy to be pushed to its stationary Pareto-efficient equilibrium, which is characterized by smaller markets for environmentally harmful goods and larger markets for environmentally favorable goods, as shown in Figure 1.
My grateful thanks are due to Herbert Giersch, William D. Nordhaus and an anonymous referee who provided helpful ideas and comments.
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Erdmann, G. (1993). Evolutionary Economics as an Approach to Environmental Problems. In: Giersch, H. (eds) Economic Progress and Environmental Concerns. A Publications of the Egon-Sohmen-Foundation. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-78074-5_4
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DOI: https://doi.org/10.1007/978-3-642-78074-5_4
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