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Implementing the Efficient Allocation of Pollution

  • Joanne Roberts

We provide simple mechanisms to implement the efficient allocation of pollution, first assuming complete information across firms and then allowing for incomplete information. Both mechanisms operate by inducing firms to monitor one another, using firms' reports to determine pollution allotments and transfers. The complete information mechanism determines a firm's transfer according to a linear pollution price, set by other firms. Both mechanisms can be modified to be budget-balanced, in and out of equilibrium. The complete information mechanism implements the efficient allocation even when firms are allowed to use mixed strategies. Under a "single-crossing" condition, the same holds for the incomplete information mechanism.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number jorob-99-01.

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Length: 22 pages
Date of creation: 23 Sep 1999
Date of revision:
Handle: RePEc:tor:tecipa:jorob-99-01
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  10. Moore, John & Repullo, Rafael, 1990. "Nash Implementation: A Full Characterization," Econometrica, Econometric Society, vol. 58(5), pages 1083-99, September.
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  12. Jackson, Matthew O, 1991. "Bayesian Implementation," Econometrica, Econometric Society, vol. 59(2), pages 461-77, March.
  13. 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 1278-93, December.
  14. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
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  17. John Duggan & Joanne Roberts, 2002. "Implementing the Efficient Allocation of Pollution," American Economic Review, American Economic Association, vol. 92(4), pages 1070-1078, September.
  18. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
  19. Lewis, Tracy R. & Sappington, David E. M., 1995. "Using markets to allocate pollution permits and other scarce resource rights under limited information," Journal of Public Economics, Elsevier, vol. 57(3), pages 431-455, July.
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  27. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
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