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Regulation via the Polluter-Pays Principle

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  • Ambec, Stefan
  • Ehlers, Lars

Abstract

We consider the problem of regulating an economy with environmental pollution. We examine the distributional impact of the polluter-pays principle which requires that any agent compensates all other agents for the damages caused by his or her (pollution) emissions. With constant marginal damages we show that regulation via the polluter-pays principle leads to the unique welfare distribution that assigns non-negative individual welfare and renders each agent responsible for his or her pollution impact. We extend both the polluter-pays principle and this result to increasing marginal damages due to pollution. We also discuss the acceptability of the polluter-pays principle and compare it with the Vickrey-Clark-Groves mechanism.

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Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 10.18.324.

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Date of creation: Dec 2010
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Handle: RePEc:ler:wpaper:10.18.324

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  1. Fleurbaey, Marc, 2012. "Fairness, Responsibility, and Welfare," OUP Catalogue, Oxford University Press, number 9780199653591, September.
  2. Chander, P. & Tulkens, H., . "The core of an economy with multilateral environmental externalities," CORE Discussion Papers RP -1276, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Moulin, H., 1989. "Uniform Externalities: Two Axioms For Fair Allocation," UFAE and IAE Working Papers 117-89, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Finus, Michael & Tjotta, Sigve, 2003. "The Oslo Protocol on sulfur reduction: the great leap forward?," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2031-2048, September.
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