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Getting Polluters to Tell the Truth

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Author Info

  • Marcelo Caffera

    (Universidad de Montevideo)

  • Juan Dubra

    (Universidad de Montevideo)

Abstract

We study the problem of a regulator who must control the emissions of a given pollutant from a series of industries when the firms' abatement costs are unknown. We develop a mechanism in which the regulator asks firms to report their abatement costs and implements the most stringent emissions standard consistent with the firms' declarations. He also inspects one of the firms in each industry which declared the cost structure consistent with the least stringent emissions standard and with an arbitrarily small probability, he discovers whether the report was true or not. The firm is punished with an arbitrarily small fine if and only if its report was false. This mechanism is simple, is implementable in practice, its unique equilibrium is truth telling by firms, it implements the first best pollution standards and shares some features of the regulatory processes actually observed in reality.

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File URL: http://128.118.178.162/eps/mic/papers/0504/0504008.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0504008.

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Length: 14 pages
Date of creation: 25 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpmi:0504008

Note: Type of Document - pdf; pages: 14
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Web page: http://128.118.178.162

Related research

Keywords: Emissions Standards; Command and Control; Undominated Nash Implementation;

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  1. 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.
  2. Kim-Sau Chung & Jeffrey C. Ely, 2003. "Implementation with Near-Complete Information," Econometrica, Econometric Society, vol. 71(3), pages 857-871, 05.
  3. Ortuno-Ortin, I. & Roemer, J.E., 1988. "Implementation With Inspection," Papers 327, California Davis - Institute of Governmental Affairs.
  4. Ignacio Ortu�O-Ortin & John E. Roemer, 1993. "Politically Realistic Implementation With Inspection: The Equity-Honesty-Welfare Trade-Off," Economics and Politics, Wiley Blackwell, vol. 5(3), pages 255-270, November.
  5. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
  6. Matthew 0. Jackson, 1989. "Implementation in Undominated Strategies - A Look at Bounded Mechanisms," Discussion Papers 833, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Anil Arya & Jonathan Glover, . "Maintaining Auditor Independence," Corporate Finance & Organizations _017, Ohio State University.
  8. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
  9. Kwerel, Evan, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 595-601, October.
  10. Clifford S. Russell & Philip T. Powell, 1996. "Choosing Environmental Policy Tools: Theoretical Cautions and Practical Considerations," IDB Publications 25258, Inter-American Development Bank.
  11. Matthew, Jackson O. & Palfrey, Thomas R. & Srivastava, Sanjay., 1990. "Undominated Nash Implementation in Bounded Mechanism," Working Papers 754, California Institute of Technology, Division of the Humanities and Social Sciences.
  12. Matthew O. Jackson & Sanjay Srivastava, 1992. "Characterizations of Game Theoretic Solutions which Lead to Impossibility Theorems," Discussion Papers 1004, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Palfrey, Thomas R & Srivastava, Sanjay, 1991. "Nash Implementation Using Undominated Strategies," Econometrica, Econometric Society, vol. 59(2), pages 479-501, March.
  14. Bohm, Peter & Russell, Clifford S., 1985. "Comparative analysis of alternative policy instruments," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 1, chapter 10, pages 395-460 Elsevier.
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