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Negatively correlated local and global stock externalities: tax or subsidy?

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  • YANG, ZILI

Abstract

Fossil fuel combustion generates both CO2 and SO2. CO2 is the most important greenhouse gas; SO2 can cause serious local pollution. But it can alleviate the potential global warming because of negative radiative forcing. Such a phenomenon can be characterized as negatively correlated local and global stock externalities. In this paper, we set up an optimal control problem of negatively correlated local and global stock externality provision. The efficiency conditions for this problem are derived. These conditions modify the Samuelson rules for optimal provision of externalities. In addition, we examine several policy related scenarios of negatively correlated local and global stock externality provisions. Finally, we discuss policy implications and limitation of the theoretical results derived in this paper. We also indicate applications of the theoretical results here to empirical research, particularly to economic analysis of multiple-gas issues in climate change.

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  • Yang, Zili, 2006. "Negatively correlated local and global stock externalities: tax or subsidy?," Environment and Development Economics, Cambridge University Press, vol. 11(3), pages 301-316, June.
    • Handle: RePEc:cup:endeec:v:11:y:2006:i:03:p:301-316_00
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    Cited by:

    1. Camille Regnier & Sophie Legras, 2018. "Urban Structure and Environmental Externalities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 70(1), pages 31-52, May.
    2. Legras, Sophie, 2011. "Incomplete model specification in a multi-pollutants setting: The case of climate change and acidification," Resource and Energy Economics, Elsevier, vol. 33(3), pages 527-543, September.
    3. Calvo, Emilio & Rubio, Santiago J., 2013. "Dynamic Models of International Environmental Agreements: A Differential Game Approach," International Review of Environmental and Resource Economics, now publishers, vol. 6(4), pages 289-339, April.
    4. Legras, Sophie, 2010. "Managing correlated stock externalities: water taxes with a pinch of salt," Environment and Development Economics, Cambridge University Press, vol. 15(3), pages 275-292, June.
    5. Günther, Michael & Hellmann, Tim, 2015. "Local and Global Pollution and International Environmental Agreements in a Network Approach," Center for Mathematical Economics Working Papers 545, Center for Mathematical Economics, Bielefeld University.
    6. Perrings, Charles, 2014. "Environment and development economics 20 years on," Environment and Development Economics, Cambridge University Press, vol. 19(3), pages 333-366, June.
    7. Günther, Michael & Hellmann, Tim, 2017. "International environmental agreements for local and global pollution," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 38-58.

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