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Mechanism design for the environment

In: Handbook of Environmental Economics

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  • Baliga, Sandeep
  • Maskin, Eric

Abstract

We argue that when externalities such as pollution are nonexcludable, agents must be compelled to participate in a "mechanism" to ensure a Pareto-efficient outcome. We survey some of the main findings of the mechanism-design (implementation-theory) literature -- such as the Nash implementation theorem, the Gibbard-Satterthwaite theorem, the Vickrey-Clarke-Groves mechanism, and the Arrow/d'Aspremont-Gerard-Varet mechanism -- and consider their implications for the environment, in particular the reduction of aggregate emissions of pollution. We consider the cases of both complete and incomplete information.

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This chapter was published in:

  • K. G. Mäler & J. R. Vincent (ed.), 2003. "Handbook of Environmental Economics," Handbook of Environmental Economics, Elsevier, edition 1, volume 1, number 1, June.
    This item is provided by Elsevier in its series Handbook of Environmental Economics with number 1-07.

    Handle: RePEc:eee:envchp:1-07

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    Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

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    References

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    1. E. Maskin, 1983. "The Theory of Implementation in Nash Equilibrium: A Survey," Working papers 333, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Eric Maskin & Tomas Sjostrom, 2001. "Implementation Theory," Economics Working Papers 0006, Institute for Advanced Study, School of Social Science.
    3. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
    4. Eric Maskin, 1998. "Nash Equilibrium and Welfare Optimality," Harvard Institute of Economic Research Working Papers 1829, Harvard - Institute of Economic Research.
    5. Dasgupta, Partha & Hammond, Peter & Maskin, Eric, 1980. "On Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 857-60, October.
    6. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-38, March.
    7. Postlewaite, Andrew & Schmeidler, David, 1986. "Implementation in differential information economies," Journal of Economic Theory, Elsevier, vol. 39(1), pages 14-33, June.
    8. Maskin, Eric S, 1994. "The Invisible Hand and Externalities," American Economic Review, American Economic Association, vol. 84(2), pages 333-37, May.
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    Cited by:
    1. Carlos A. Chavez & John K. Stranlund, 2008. "A Note on Emissions Taxes and Incomplete Information," Working Papers 2008-5, University of Massachusetts Amherst, Department of Resource Economics.
    2. Jason Shogren & Gregory Parkhurst & Prasenjit Banerjee, 2010. "Two Cheers and a Qualm for Behavioral Environmental Economics," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(2), pages 235-247, June.
    3. Denis Claude & Charles Figuières & Mabel Tidball, 2012. "Regulation of Investments in Infrastructure: The Interplay between Strategic Behaviors and Initial Endowments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(1), pages 35-66, 02.
    4. Eric S. Maskin, 2008. "Mechanism Design: How to Implement Social Goals," American Economic Review, American Economic Association, vol. 98(3), pages 567-76, June.
    5. Matveenko, V., 2010. "Stimulating Mechanisms in Ecologically Motivated Regulation: Will Ecological Policies in Transition and Developing Countries Become Efficient?," Journal of the New Economic Association, New Economic Association, issue 8, pages 10-34.
    6. Martimort, David & Sand-Zantman, Wilfried, 2011. "A Mechanism Design Approach to Climate Agreements," TSE Working Papers 11-251, Toulouse School of Economics (TSE), revised 30 Apr 2013.
    7. Axel Ockenfels, 2008. "Marktdesign und Experimentelle Wirtschaftsforschung," Working Paper Series in Economics 41, University of Cologne, Department of Economics.
    8. Banerjee, Prasenjit & Shogren, Jason F., 2012. "Fat-tail Climate Risks, Mechanism design, and Reputation," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124920, Agricultural and Applied Economics Association.
    9. Martimort, David & Sand-Zantman, Wilfried, 2012. "Solving the GlobalWarming Problem: Beyond Markets, Simple Mechanisms May Help!," IDEI Working Papers 746, Institut d'Économie Industrielle (IDEI), Toulouse.
    10. Herve Moulin & Indrajit Ray & Sonali Sen Gupta, 2013. "Coarse Correlated Equilibria in an Abatement Game," Discussion Papers 13-11, Department of Economics, University of Birmingham.
    11. Banerjee, Prasenjit & Shogren, Jason F., 2012. "Material interests, moral reputation, and crowding out species protection on private land," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 137-149.
    12. Banerjee, Prasenjit & Shogren, Jason F., 2010. "Regulation, reputation, and environmental risk," Economics Letters, Elsevier, vol. 106(1), pages 45-47, January.
    13. Rodrigo Harrison & Roger Lagunoff, 2013. "Dynamic Mechanism Design for a Global Commons," Documentos de Trabajo 442, Instituto de Economia. Pontificia Universidad Católica de Chile..
    14. Committee, Nobel Prize, 2007. "Leonid Hurwicz, Eric S. Maskin and Roger B. Myerson: Mechanism Design Theory," Nobel Prize in Economics documents 2007-2, Nobel Prize Committee.

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