YUSEF Y. MASOUD, Libyan Open University, Libya
Purpose: This study considers how an increase in production costs following an action to reduce environmental pollution would be shared between the producer and the consumer. As such, it makes an interesting contribution to the literature on environmental economics by discussing, and modelling, how such a cost increase would be shared between the producer and the consumer.
Design/methodology/approach: The method used in the study is a descriptive and analytical (time series analysis and the application of microeconomic analysis tools) to determine the potential effects of environmental policy on the case study company. In essence, the study calculates price elasticities of demand and supply and applies an appropriate value for the cost of environmental improvement. Then the relative elasticities are used to determine producer and consumer shares of the cost increase. The student has selected one of the major cement producers in Libya – Zileten Cement Company and the study contacted on Zileten cement plant, and the period of time series of this study is 1990–2010.
Findings: The environmental policy on combatting the environmental pollution caused by the cement industry has led to an increase of the cement production cost. Therefore, the amount of additional cost will be borne almost equally between the producer and the consumer.
Originality/value: Thus, this study has provided a good basis for decision makers in Libya generally and the Zileten Cement Plant specifically. To know how much the environmental burden would be borne, a special table was developed to help the decision makers in cement industry (or those concerned with planning economic activity.) to know who will bear the burden of environmental cost; whether it is the producer or the consumer, and who would bear a larger amount of cost if both. This table, or distribution, is considered as a major contribution in this study which could be applied in any country or with any sort of industry which has an impact on the environment.
Keywords: consumer surplus; producer surplus; environmental cost; marginal cost; elasticity.