Citizens' demand for permits and Kwerel''s incentive compatible mechanism for pollution control
An interesting feature of pollution permit markets is that citizens may purchase permits to directly lower the levels of pollution. Kwerel's mechanism (Review of Economic Studies~1977) is not incentive compatible when citizens demand permits. We show that a modification of Kwerel''s mechainism, the minimum-price mechanism, is incentive compatible when citizens demand permits, even in the case where there is uncertainty about the damages from pollution.
Volume (Year): 17 (2007)
Issue (Month): 4 ()
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- Ratna Shrestha, 1998. "Uncertainty and the Choice of Policy Instruments: A Note On Baumol and Oates Propositions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 12(4), pages 497-505, December.
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- Conley, John P. & Smith, Stefani C., 2005. "Coasian equilibrium," Journal of Mathematical Economics, Elsevier, vol. 41(6), pages 687-704, September.
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