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Multi Pollutant Yardstick Schemes as Environmental Policy Tools

  • Laurent Franckx


    (Department of Economics and Management, Royal Military Academy)

  • Alessio D’Amato†, Isabelle Brose


    (University of Rome “Tor Vergata”)

  • Isabelle Brose


    (Department of Economics and Management, Royal Military Academy)

We consider environmental regulation of n risk-averse, multiple pollutant firms. We develop a “yardstick competition” scheme where the regulatory scheme depends on the di erence between a firm’s “aggregate” performance and the average “aggregate” performance of the industry. Whether this instruments dominates Pigovian taxation depends on the complete structure of the covariance matrix of the “common” random terms in measured pollution. Moreover, if the number of firms is large enough, the “yardstick scheme” is always superior to Pigovian taxation. This analysis also provides new arguments in favor of strict liability rather than negligence liability as regulatory tool.

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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment in its series Energy, Transport and Environment Working Papers Series with number ete0416.

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Length: 19 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:ete:etewps:ete0416
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  1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  2. Segerson, Kathleen, 1988. "Uncertainty and incentives for nonpoint pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 15(1), pages 87-98, March.
  3. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
  4. repec:ebl:ecbull:v:10:y:2004:i:10:p:1-10 is not listed on IDEAS
  5. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers 368, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
  7. Laurent Franckx & Isabelle Brose & Alessio DAmato, 2004. "Multitask Rank Order Tournaments," Economics Bulletin, AccessEcon, vol. 10(10), pages 1-10.
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