Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

18

Publisher

Utah State University Department of Economics

Publication Date

2001

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

23

Abstract

In this paper, we present a nonrenewable resource model including environmental pollution stock as a state variable to analyze the dynamic structure of an optimal tax. Based on the optimality conditions of our model, we showed that the optimal time path of the shadow cost of environmental pollution stock is the same as that of the costate variable of environmental pollution stock. We derived this statement by applying the Continuous Dependence on Initial Conditions Theorem (Coddington, E.A. & N. Levinston 1984, pp. 22-27) to the optimal control problem. Thus, this result provides a theoretical basis to determine the magnitude of optimal tax to be imposed over time. In addition, we observed the characteristics of two costate variables included in our model. We identified that the costate variable for resource stock is decomposed between the scarcity 3effect and the cost effect. On the other hand, the costate variable for environmental pollution stock is solely due to the disutility effect.

Download

Share

COinS