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Local Pollution in Federal Systems

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  • Per Andersen

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  • Frank Jensen

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Abstract

It is widely accepted that decentralized control of local pollution is inefficient if the central and the local authorities are imperfectly informed. This paper shows how the central authority can introduce a flexible grant-in-aid system that induces the local authority to use a weighted combination of local and central information when the local authority suffers from confirmatory bias. If the central authority is highly uncertain about the environmental effects of a specific pollutant, the tax/subsidy scheme can be designed to allow local information to play an essential role in the environmental policy. If the central authority is certain that a pollutant must not exceed a specific limit, the tax/subsidy scheme can be designed to allow local information little influence on the environmental policy. Copyright Kluwer Academic Publishers 2003

Suggested Citation

  • Per Andersen & Frank Jensen, 2003. "Local Pollution in Federal Systems," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(3), pages 417-428, November.
  • Handle: RePEc:kap:enreec:v:26:y:2003:i:3:p:417-428
    DOI: 10.1023/B:EARE.0000003596.02533.81
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    References listed on IDEAS

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    1. List, John A. & Mason, Charles F., 2001. "Optimal Institutional Arrangements for Transboundary Pollutants in a Second-Best World: Evidence from a Differential Game with Asymmetric Players," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 277-296, November.
    2. Farrell, Joseph, 1987. "Information and the Coase Theorem," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 113-129, Fall.
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    5. Silva, Emilson C. D., 1997. "Decentralized and Efficient Control of Transboundary Pollution in Federal Systems," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 95-108, January.
    6. Myers, Gordon M., 1990. "Optimality, free mobility, and the regional authority in a federation," Journal of Public Economics, Elsevier, vol. 43(1), pages 107-121, October.
    7. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, March.
    8. Cropper, Maureen L & Oates, Wallace E, 1992. "Environmental Economics: A Survey," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 675-740, June.
    9. List, John A. & Gerking, Shelby D., 1996. "Optimal Institutional Arrangements for Pollution Control," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 26(1).
    10. Peter Klibanoff & Jonathan Morduch, 1995. "Decentralization, Externalities, and Efficiency," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 223-247.
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    Cited by:

    1. Katarina Elofsson, 2011. "Delegation of Decision-Rights for Wetlands," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(2), pages 285-303, October.

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