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Budget Balancing Incentive Mechanisms

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Author Info
Joseph A. Herriges
Ramu Govindasamy
Jason F. Shogren

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Abstract

Xepapadeas [10] develops a pollution abatement incentive mechanism that both reduces the information requirements of regulator and is "budget balancing" drawing only on the social gains from pollution abatement to encourage firm compliance. This paper demonstrates that, contrary to Xepapadeas [10], the budget balancing system of random penalties cannot be used induce compliance with the regulator's objectives if firms are risk neutral. However, the mechanism can be successfully applied if firms are sufficiently risk averse (Rasmusen [9]). Second, the paper explores the optimal design of the random fine system, including the choice of fines, penalty probabilities, and team size.

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Publisher Info
Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 92-wp100.

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Date of creation: Oct 1992
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Handle: RePEc:ias:cpaper:92-wp100

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  1. Lars Hansen, 2002. "Regulation of Non-Point Emissions – A Variance Based Mechanism," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(4), pages 303-316, April. [Downloadable!] (restricted)
  2. James Shortle & David Abler & Richard Horan, 1998. "Research Issues in Nonpoint Pollution Control," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 571-585, April. [Downloadable!] (restricted)
  3. Kathleen Segerson & JunJie Wu, 2003. "Nonpoint Pollution Control: Inducing First-best Outcomes through the Use of Threats," Working papers 2003-03, University of Connecticut, Department of Economics, revised Aug 2004. [Downloadable!]
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  4. Joanne Roberts, 1999. "Implementing the Efficient Allocation of Pollution," Working Papers jorob-99-01, University of Toronto, Department of Economics. [Downloadable!]
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  5. Francisco Alpízar & Till Requate & Albert Schram, 2004. "Collective versus Random Fining: An Experimental Study on Controlling Ambient Pollution," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 29(2), pages 231-252, October. [Downloadable!] (restricted)
  6. Richard Horan & James Shortle & David Abler, 2002. "Ambient Taxes Under m-Dimensional Choice Sets, Heterogeneous Expectations, and Risk-Aversion," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(2), pages 189-202, February. [Downloadable!] (restricted)
  7. Lars Hansen, 1998. "A Damage Based Tax Mechanism for Regulation of Non-Point Emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 12(1), pages 99-112, July. [Downloadable!] (restricted)
  8. Larry Karp, 1998. "Nonpoint Source Pollution Taxes and Excessive Tax Burden," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 835, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
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