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River pollution abatement: Decentralized solutions and smart contracts

Author

Listed:
  • Jens Gudmundsson

    (Department of Food and Resource Economics, University of Copenhagen)

  • Jens Leth Hougaard

    (Department of Food and Resource Economics, University of Copenhagen)

Abstract

In river systems, costly upstream pollution abatement creates downstream welfare gains. Absent adequate agreement on how to share the gains, upstream regions lack incentives to reduce pollution levels. We develop a model that makes explicit the impact of water quality on production benefits and suggest a solution for sharing the gains of optimal pollution abatement, namely the Shapley value of an underlying convex cooperative game. We provide a decentralized implementation through a smart contract to automate negotiations. It ensures a socially optimal agreement supported by fair compensations to regions that turn to cleaner production from those that pollute.

Suggested Citation

  • Jens Gudmundsson & Jens Leth Hougaard, 2021. "River pollution abatement: Decentralized solutions and smart contracts," IFRO Working Paper 2021/07, University of Copenhagen, Department of Food and Resource Economics, revised Oct 2021.
    • Handle: RePEc:foi:wpaper:2021_07
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    File URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2021/IFRO_WP_2021_07_update.pdf
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    References listed on IDEAS

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    Cited by:

    1. Yuzhi Yang & Erik Ansink & Jens Gudmundsson, 2023. "How to Pollute a River If You Must," Tinbergen Institute Discussion Papers 23-036/VIII, Tinbergen Institute.

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    More about this item

    Keywords

    River pollution; Decentralized mechanism; Shapley value; Water quality; Smart contract;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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