Abatement Expenditure Acts as an Environmental Investment: An Efficiency Wage Viewpoint

Abstract

By presenting an efficiency wage model embodying intertemporal optimization, this paper proposes a channel to illustrate the willingness of firm's abatement activities. The idea is that worker's efficiency on working is positively related to his stock of health capital, and that abatement will raise the flow of health. The firm thus will treat the abatement expenditure as an environmental investment since it will raise the stock of health capital, and hence the working efficiency in the future. In addition, our model predicts that, when the authorities raise the subsidy on firm's abatement expenditure, the firm will raise both employment and abatement expenditures and lower its wage offer.