Applied general equilibrium modeling for environmental policy analysis

Incorporating environmental regulations and its impact in general equilibrium models has by now a twenty years long tradition. In 1970, Leontief extended his input-output approach to quantify environmental repercussions on the economic structure. The shortcomings of this model, such as fixed coefficients in technological processes or zero price and income elasticities of demand, can be resolved by using a quantitative general equilibrium model. The objective of this paper is to employ such a model to quantify the economic effects of environmental policy and to present a cost-effectiveness analysis of different market instruments in environmental policy.