Voluntary provision of environmental offsets under monopolistic competition

In a general equilibrium model where individuals voluntarily provide offsets which compensate for degradation of environmental quality by consuming differentiated goods produced by monopolistically competitive firms, this paper examines how the population size affects the equilibrium levels of offsets and net contributions. The results depend on the specification of the utility function. However, when environmental quality converges to a finite level, the offsets are independent of this specification in a large economy with many individuals. Offsets are positive in the large economy, and “carbon neutrality” holds: Net contributions are zero. The comparative statics of parameters are also analyzed.