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Communication and Incentive Mechanisms Based on Group Performance: An Experimental Study of Nonpoint Pollution Control

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  • Christian A. Vossler
  • Gregory L. Poe
  • William D. Schulze
  • Kathleen Segerson

Abstract

This article considers whether communication can improve the efficacy of incentive mechanisms designed to correct the problem of moral hazard in groups. In particular, we use experimental economics methods to study environmental targeting instruments proposed by Segerson (1988) for regulating a group of nonpoint source polluters based on ambient concentrations. We find that communication greatly affects group performance, enhancing the efficiency of instruments involving fixed fines but leading to overcompliance, and hence inefficiency, in marginal tax/subsidy instruments. These results have implications for future theoretical development of group performance mechanisms as well as the design of public policies. (JEL H23, C92) Copyright 2006, Oxford University Press.

Suggested Citation

  • Christian A. Vossler & Gregory L. Poe & William D. Schulze & Kathleen Segerson, 2006. "Communication and Incentive Mechanisms Based on Group Performance: An Experimental Study of Nonpoint Pollution Control," Economic Inquiry, Western Economic Association International, vol. 44(4), pages 599-613, October.
    • Handle: RePEc:oup:ecinqu:v:44:y:2006:i:4:p:599-613
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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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