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Hazardous Facility Siting When Cost Information Is Private: An Application of Multidimensional Mechanism Design

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  • Keith Waehrer

Abstract

The siting of hazardous facilities often involves externalities that extend beyond the border of the community selected as a site. Thus, the private information of each community is potentially a vector of costs comprising a cost for each of the possible sites. I characterize the conditions for the existence of a direct mechanism that is incentive compatible, individually rational, and budget balancing. Incentive compatibility implies a pattern of compensation payments that often conflicts with compensation policy goals. When nonparticipating communities cannot block the siting of the facility, it will often be possible to implement siting policies with a balanced budget. Copyright 2003 Blackwell Publishing Inc..

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  • Keith Waehrer, 2003. "Hazardous Facility Siting When Cost Information Is Private: An Application of Multidimensional Mechanism Design," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(4), pages 605-622, October.
  • Handle: RePEc:bla:jpbect:v:5:y:2003:i:4:p:605-622
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    References listed on IDEAS

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    1. Kunreuther, Howard & Kleindorfer, Paul R, 1986. "A Sealed-Bid Auction Mechanism for Siting Noxious Facilities," American Economic Review, American Economic Association, vol. 76(2), pages 295-299, May.
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    Cited by:

    1. Martin Besfamille & Jean-Marie Lozachmeur, 2010. "NIMBY and mechanism design under different constitutional constraints," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 114-132, April.
    2. Philippe Jehiel & Benny Moldovanu, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Levine's Bibliography 784828000000000490, UCLA Department of Economics.
    3. Garrone, Paola & Groppi, Angelamaria, 2012. "Siting locally-unwanted facilities: What can be learnt from the location of Italian power plants," Energy Policy, Elsevier, vol. 45(C), pages 176-186.
    4. Rudy Santore, 2014. "Noxious Facilities, Environmental Damages, and Efficient Randomized Siting," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(1), pages 101-116, January.

    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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