Effects of pollution taxation on the pattern or resource allocation: the downstream diffusion case
The notion of ''internalizing'' pollution externality generated by the effluent of an upstream firm that damages the product of a downstream firm is a classical case in the literature on externalities (J. Econ. Lit., 9: 1-28(Mar. 1971)). This paper casts this problem into a von Thunen-like model and analyzes in this framework the effects of externalities on land utilization and rent along the stream. The firms' pollutants accumulate and diffuse by water streams or airstreams, damaging the production of the downstream firms or the welfare of the urban center. The polluters can be agricultural firms, mines, or any other industry located along the stream. The analysis is applied to an industry that operates in a competitive system whose share in the market is relatively small so that product and factor prices are given. The maximization of the joint net profit minus the social costs of pollution at the urban center results in Pareto optimal resource allocation. In the case treated here, the market can achieve this efficient resource allocation if the pollution externalities are internalized by taxation and the tax revenues are redistributed without affecting production decisions. The characteristics of the resource allocation and the corresponding price system, with and without this taxation, are elaborated upon.
- Research Organization:
- Tel Aviv. Univ., Israel
- OSTI ID:
- 5340278
- Journal Information:
- Q. J. Econ.; (United States), Journal Name: Q. J. Econ.; (United States) Vol. 91:4; ISSN QJECA
- Country of Publication:
- United States
- Language:
- English
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54 ENVIRONMENTAL SCIENCES
ALLOCATIONS
ECONOMIC IMPACT
INDUSTRY
LAND USE
POLLUTION
POLLUTION REGULATIONS
REGULATIONS
RESOURCES
SOCIAL IMPACT
TAXES
WATER POLLUTION