Environmental Damage and Price Taking Behaviour by Firms and Consumers

Integrated assessment models lack a microeconomic foundation in modelling environmental damages to the economy. To overcome this, damage coefficients are incorporated in standard microeconomic models. Firms and consumers take both damages and prices as given. Demand, supply, profit and expenditure functions under damage coefficients are derived that allow easy implementation in applied economic models through appropriate price distortions related to such coefficients. For the consumer, Slutsky's equations are derived. The different speeds of equilibrium adjustment in economic and climate models is reconciled in the Recursive Equilibrium with Environmental Damages (REED). An exchange economy and Robinson Crusoe economy illustrate our approach.

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Year of publication:	2009
Authors:	Houba, Harold ; Kremers, Hans
Institutions:	DIW Berlin (Deutsches Institut für Wirtschaftsforschung)
Subject:	environmental damage \| substitution effects \| income effects \| Slutsky's equations \| equilibrium

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Extent:	application/pdf
Series:	Discussion Papers of DIW Berlin. - ISSN 1619-4535.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 878 25 pages long
Classification:	Q41 - Demand and Supply ; Q51 - Valuation of Environmental Effects ; Q52 - Pollution Control Costs; Distributional Effects ; D11 - Consumer Economics: Theory ; D12 - Consumer Economics: Empirical Analysis ; D51 - Exchange and Production Economies
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10004963777