Moretto, M. (1995).

Polluter’s Capital Quality Standards and Subsidy-Tax Programs for Environmental Externalities: A Competitive Equilibrium Analysis. In Control and Game-Theoretic Models of the Environment (pp. 231-256). Birkhäuser, Boston, MA.


The paper concentrates on the role of the physical features of the fixed assets in determining the extent of discharges. It considers the case where the firms have access to a technology which allows one to regulate the quality of capital instantaneously through a lump-sum maintenance expenditure which applies only when the state variable hits a predetermined minimum quality standard. In a partial equilibrium framework (single firm and a long-run competitive industry) the paper investigates the relationship between the optimal firm’s barrier policy comprising the capital’s minimum quality standard and the use of a subsidy/tax program for decreasing pollution emissions by those who generate externalities.