In part II we analyze optimal environmental allocation and suggest different approaches in order to determine the optimal environmental solution. Environmental allocation is placed into the context of static optimization models, the economics of public goods and the theory of property rights. In chapters 7, 8 and 9, our interest shifts to environmental policy instruments. In chapter 7, we analyze how firms react to an emission tax, and what the overall incidence of an emission tax will be on environmental quality, emissions, the allocation of resources in production and abatement and sectorial structure. We thus analyze the incidence problem in detail for a specific instrument. In chapter 8, we survey the environmental policy instruments available looking at their relative advantages and disadvantages. In chapter 9 we study some institutional conditions in which policy instruments are chosen and the influence of the institutional setting on environmental policy.
KeywordsAbatement Cost Relative Price Marginal Abatement Cost Pollution Intensity Resource Price
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