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Menus of price-quantity contracts for inducing the truth in environmental regulation

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  • Shrestha, Ratna K.

Abstract

Many authors have proposed mechanisms to induce regulated polluting firms to truthfully reveal their private information. This paper proposes an alternative scheme in which the regulator offers each firm a menu of linear price-quantity contracts; faced with this menu, each firm′s dominant strategy is to truthfully report its private information and self-select the contract that is ex post efficient. The proposed menu schedule that is more elastic than the firm′s residual marginal damage function engenders a positive quantity effect, thereby counterbalancing the firm′s incentive to misreport prompted by the linearity of price. Due to its built-in price quantity structure, the scheme performs as designed regardless of the elasticities of marginal damage and demand functions.

Suggested Citation

  • Shrestha, Ratna K., 2017. "Menus of price-quantity contracts for inducing the truth in environmental regulation," Journal of Environmental Economics and Management, Elsevier, vol. 83(C), pages 1-7.
    • Handle: RePEc:eee:jeeman:v:83:y:2017:i:c:p:1-7
    DOI: 10.1016/j.jeem.2016.11.008
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    Cited by:

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    4. Peyman Khezr & Ian A. MacKenzie, 2018. "An efficient and implementable auction for environmental rights," Discussion Papers Series 587, School of Economics, University of Queensland, Australia.

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    More about this item

    Keywords

    Menus; Dominant strategy; Residual damage; Pecuniary externality;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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