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Citizens' demand for permits and Kwerel''s incentive compatible mechanism for pollution control

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  • Andrew Yates

    ()
    (University of Richmond)

  • Daniel English

    ()
    (University of Richmond)

Abstract

An interesting feature of pollution permit markets is that citizens may purchase permits to directly lower the levels of pollution. Kwerel's mechanism (Review of Economic Studies~1977) is not incentive compatible when citizens demand permits. We show that a modification of Kwerel''s mechainism, the minimum-price mechanism, is incentive compatible when citizens demand permits, even in the case where there is uncertainty about the damages from pollution.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 17 (2007)
Issue (Month): 4 ()
Pages: 1-9

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Handle: RePEc:ebl:ecbull:eb-07q20001

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  1. Boyd, John III & Conley, John P., 1997. "Fundamental Nonconvexities in Arrovian Markets and a Coasian Solution to the Problem of Externalities," Journal of Economic Theory, Elsevier, Elsevier, vol. 72(2), pages 388-407, February.
  2. Aparna Guha, 1996. "Internationalizing the Role of Domestic Pollution Permit Market," Eastern Economic Journal, Eastern Economic Association, vol. 22(4), pages 449-456, Fall.
  3. Dasgupta, Partha & Hammond, Peter & Maskin, Eric, 1980. "On Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 47(5), pages 857-60, October.
  4. Malueg, David A. & Yates, Andrew J., 2006. "Citizen participation in pollution permit markets," Journal of Environmental Economics and Management, Elsevier, vol. 51(2), pages 205-217, March.
  5. Smith, Stefani C. & Yates, Andrew J., 2003. "Optimal pollution permit endowments in markets with endogenous emissions," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 425-445, November.
  6. Conley, John P. & Smith, Stefani C., 2005. "Coasian equilibrium," Journal of Mathematical Economics, Elsevier, vol. 41(6), pages 687-704, September.
  7. Kwerel, Evan, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(3), pages 595-601, October.
  8. Lewis, Tracy R. & Sappington, David E. M., 1995. "Using markets to allocate pollution permits and other scarce resource rights under limited information," Journal of Public Economics, Elsevier, Elsevier, vol. 57(3), pages 431-455, July.
  9. Ratna Shrestha, 1998. "Uncertainty and the Choice of Policy Instruments: A Note On Baumol and Oates Propositions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 12(4), pages 497-505, December.
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Cited by:
  1. Kahana, Nava & Mealem, Yosef & Nitzan, Shmuel, 2009. "The Efficient and Fair Approval of "Multiple-Cost - Single-Benefit" Projects under Unilateral Information," IZA Discussion Papers 4181, Institute for the Study of Labor (IZA).
  2. Asproudis, Elias & Weyman-Jones, Tom, 2011. "Third parties �participation in tradable permits market. Do we need them?," MPRA Paper 28766, University Library of Munich, Germany.

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