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Regulation via the Polluter-Pays Principle

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  • AMBEC, Stefan
  • EHLERS, Lars

Abstract

We consider the problem of regulating an economy with environmental pollution. We examine the distributional impact of the polluter-pays principle which requires that any agent compensates all other agents for the damages caused by his or her (pollution) emissions. With constant marginal damages we show that regulation via the polluter-pays principle leads to the unique welfare distribution that assigns non-negative individual welfare and renders each agent responsible for his or her pollution impact. We extend both the polluter-pays principle and this result to increasing marginal damages due to pollution. We also discuss the acceptability of the polluter-pays principle and compare it with the Vickrey-Clark-Groves mechanism.

Suggested Citation

  • AMBEC, Stefan & EHLERS, Lars, 2011. "Regulation via the Polluter-Pays Principle," Cahiers de recherche 01-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  • Handle: RePEc:mtl:montec:01-2011
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    References listed on IDEAS

    as
    1. Charles D. Kolstad, 2000. "Spatial Environmental and Resource Economics," Books, Edward Elgar Publishing, number 1918, April.
    2. Henry Tulkens & Parkash Chander, 1997. "The Core of an Economy with Multilateral Environmental Externalities," International Journal of Game Theory, Springer;Game Theory Society, pages 379-401.
    3. Fleurbaey, Marc, 2012. "Fairness, Responsibility, and Welfare," OUP Catalogue, Oxford University Press, number 9780199653591.
    4. Moulin, Herve, 1990. "Uniform externalities : Two axioms for fair allocation," Journal of Public Economics, Elsevier, pages 305-326.
    5. Finus, Michael & Tjotta, Sigve, 2003. "The Oslo Protocol on sulfur reduction: the great leap forward?," Journal of Public Economics, Elsevier, pages 2031-2048.
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    Cited by:

    1. Kim, S. & Pollitt, M. & Jin, Y. & Yoon, Y., 2017. "Contractual Framework for the Devolution of System Balancing Responsibility from the Transmission System Operator to Distribution System Operators," Cambridge Working Papers in Economics 1738, Faculty of Economics, University of Cambridge.

    More about this item

    Keywords

    Regulation; polluter-pays principle; responsibility for pollution impact; externalities;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D30 - Microeconomics - - Distribution - - - General
    • D6 - Microeconomics - - Welfare Economics

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