Environmental Preservation, Sectoral Unemployment, and Trade in Resources

Abstract

This paper develops a general equilibrium model to examine the optimal level of environmental preservation in terms of its costs and benefits for a closed as well as an open economy. The optimal preservation policy for a closed economy is to tax the general population and use the tax revenue to compensate affected workers. Furthermore, for a small open economy, free trade in resources can meet whatever shortage of domestic productive resources that may occur, thereby leading to a higher optimal level of environmental preservation.