Abstract

The transboundary pollution control model describes how a government can effectively deal with the pollution externality within a country by means of emission charges, and how governments can jointly deal with the pollution externality between countries by means of coordinating emission charges. In such models the emission-output ratio is generally fixed. In this note the option of stimulating investment in clean technology in order to lower the emission-output ratio is introduced. Such a framework allows the analysis of elements of the environmental debate between optimists who favour growth in order to have resources to invest in clean technology, and pessimists who favour bringing down production and the by-product pollution. The answer, of course, depends on the elasticity of the emission-output ratio against the stock of clean technology.

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