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ENVIRONMENTAL TAXES, RELATIVE PRICES AND CHOICE OF TECHNIQUE IN A LINEAR MODEL OF PRODUCTION
Author(s) -
Gehrke Christian,
Lager Christian
Publication year - 1995
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.1995.tb00374.x
Subject(s) - economics , production (economics) , relative price , substitution (logic) , energy (signal processing) , microeconomics , econometrics , natural resource economics , mathematics , computer science , statistics , programming language
A classical model of production is used to study the effects of environmental taxes on relative prices and on the choice of technique. It is shown that a taxation of energy inputs can induce cost‐minimizing producers to switch to a technique that requires more total energy. An explanation for such a ‘perverse’ substitution is provided by showing that with a positive rate of profits the relative prices of (relatively) energy‐intensive products can be higher with a higher tax rate.