Environmental Policy, Allocation of Resources, Sector Structure and Comparative Price Advantage

The paper analyzes the problem how environmental policy affects sector structure, the allocation of resources, relative price (and comparative advantage) and national income. The frame of reference is a two-sector model in which production generates pollutants as a joint product. The model is closed with respect to the demand side and with respect to the receipts from the emission tax. Conditions with respect to production, emission and demand are specified under which resource use in the pollution-intensively producing sector will fall, resource use in the abatement activity will increase, the relative price of the pollution-intensively produced commodity will rise and national income will fall. Possible extensions are indicated