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Circumventing Information and Incentive Problems in Pollution Control

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Abstract

To mitigate pollution this note advocates a two-component system. The polluter pays for the damage he causes and for the opportunity to do so. The main motivation is to achieve Pareto e¢ ciency while avoiding problems caused by asymmetric information and strategic moves. The proposed regime induces each polluter to solve the same optimization problem as an altruistic planner. Since the monetary burden of the scheme matches a linear Pigouvian tax, it does not encourage firms to split or merge.

Suggested Citation

  • Berglann, Helge, 2004. "Circumventing Information and Incentive Problems in Pollution Control," Working Papers in Economics 04/04, University of Bergen, Department of Economics.
  • Handle: RePEc:hhs:bergec:2004_004
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    File URL: http://www.uib.no/filearchive/04-04.pdf
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    Keywords

    externalities; asymmetric information; Pareto efficiency; environmental policy; linear Pigouvian tax; Individual Transferable Fees;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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