Transboundary pollution, asymmetric information and social welfare
We consider two regulator-firm hierarchies with transboundary pollution, and firms may have private information about their marginal cost of production. The pollution of each firm is proportional to its production. The impact of asymmetric information on social welfare can be explained by a positive effect, which is the reduction of transborder pollution one negative effect is the socially costly informational rents captured by firms. We show that, when the damage function is as such, the non-internalization of the transfrontier pollution is sufficiently important, then non-cooperating countries can get a higher expected or ex ante social welfare under incomplete information.
Volume (Year): 4 (2004)
Issue (Month): 9 ()
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