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Optimal Management of Durable Pollution

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  • Sudhir A. Shah

    (Delhi School of Economics)

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    Abstract

    This paper studies an incompletely informed regulator's problem of inducing a firm producing durable pollution to adopt a socially optimal pollution storage technology. We construct a sparse, yet flexible, theoretical model that can be applied directly to concrete situations as it is stated explicitly in terms of statistical parameters. Next, we show the existence of an optimal regulatory contract and examine its qualitative features for one of the many regulatory problems suggested by the general model. Our model extends the standard inventory model by making the firm's storage technology a strategic choice induced by the regulatory contract. Moreover, by providing a structural model of the firm, our model generates useful information that has to be assumed in an abstract regulatory model.

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    Bibliographic Info

    Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 113.

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    Length: 41 pages
    Date of creation: Jan 2003
    Date of revision:
    Handle: RePEc:cde:cdewps:113

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    Related research

    Keywords: regulation; durable pollution; stochastic control; incomplete information;

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    1. Harrison, J. Michael & Taylor, Allison J., 1978. "Optimal control of a Brownian storage system," Stochastic Processes and their Applications, Elsevier, Elsevier, vol. 6(2), pages 179-194, January.
    2. Keeler, Emmett & Spence, Michael & Zeckhauser, Richard, 1972. "The optimal control of pollution," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(1), pages 19-34, February.
    3. C. G. Plourde, 1972. "A Model of Waste Accumulation and Disposal," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 5(1), pages 119-25, February.
    4. Xepapadeas, A. P., 1992. "Environmental policy, adjustment costs, and behavior of the firm," Journal of Environmental Economics and Management, Elsevier, vol. 23(3), pages 258-275, November.
    5. d'Arge, R C & Kogiku, K C, 1973. "Economic Growth and the Environment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 40(1), pages 61-77, January.
    6. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers, Michigan - Center for Research on Economic & Social Theory 89-23, Michigan - Center for Research on Economic & Social Theory.
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