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A Note on Pollution Regulation With Asymmetric Information

Listed author(s):
  • Alberto Pench

    (Department of Political Sciences, University of Pisa)

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    The paper addresses the problem of information asymmetry between a regulator and the polluting firms and proposes a very simple mechanism where the regulator is free to choose, without communicating in advance to the firms, between two instruments: an effluent fee or a standard: as a result in a real world setting this uncertainty might induce firms to a truthful revelation. Moreover, under the assumption of linear marginal abatement or marginal social damage functions, in many cases the resulting optimal behaviour might be an under reporting for some firms and an over reporting for others so that the resulting marginal aggregate benefit function might be not so far from the true one and the aggregate pollution level attained by the mechanism not so far from optimal.

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    File URL: http://www.feem.it/userfiles/attach/201639114264NDL2016-020.pdf
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    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2016.20.

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    Date of creation: Mar 2016
    Handle: RePEc:fem:femwpa:2016.20
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    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
    2. Juan-Pablo Montero, 2008. "A Simple Auction Mechanism for the Optimal Allocation of the Commons," American Economic Review, American Economic Association, vol. 98(1), pages 496-518, March.
    3. Bulckaen, Fabrizio, 1997. "Emissions Charge and Asymmetric Information: Consistently a Problem?," Journal of Environmental Economics and Management, Elsevier, vol. 34(1), pages 100-106, September.
    4. Weitzman, Martin L, 1978. "Optimal Rewards for Economic Regulation," American Economic Review, American Economic Association, vol. 68(4), pages 683-691, September.
    5. Varian, Hal R, 1994. "A Solution to the Problem of Externalities When Agents Are Well-Informed," American Economic Review, American Economic Association, vol. 84(5), pages 1278-1293, December.
    6. Evan Kwerel, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 595-601.
    7. John Duggan & Joanne Roberts, 2002. "Implementing the Efficient Allocation of Pollution," American Economic Review, American Economic Association, vol. 92(4), pages 1070-1078, September.
    8. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
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