Budget Balancing Incentive Mechanisms
AbstractXepapadeas  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 , 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 ). 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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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1503.
Date of creation: 01 Jan 1994
Date of revision:
Publication status: Published in Journal of Environmental Economics and Management 1994, vol. 27, pp. 275-285
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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Other versions of this item:
- Joseph A. Herriges & Ramu Govindasamy & Jason F. Shogren, 1992. "Budget Balancing Incentive Mechanisms," Center for Agricultural and Rural Development (CARD) Publications 92-wp100, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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