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Hazardous Facility Siting When Cost Information is Private: An Application of Multidimensional Mechanism Design

  • Keith Waehrer

    (U.S. Bureau of Labor Statistics)

The siting of noxious facilities often involves externalities that extend beyond the border of the community selected as a site. Thus, the private information of each community is potentially a vector of costs comprising a cost for each of the possible sites. I characterize the conditions for the existence of a mechanism that is incentive compatible, individual rational, and budget balancing and show that efficient mechanisms under reasonable assumptions will satisfy these conditions. However, incentive compatibility implies a pattern of compensation payments that often conflicts with commonly held views on how communities should be compensated for environmental costs.

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File URL: http://econwpa.repec.org/eps/game/papers/9702/9702004.pdf
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Paper provided by EconWPA in its series Game Theory and Information with number 9702004.

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Date of creation: 26 Feb 1997
Date of revision: 26 Feb 1997
Handle: RePEc:wpa:wuwpga:9702004
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Jehiel, Phillipe & Moldovanu, Benny & Stacchetti, E., 1997. "Multidimensional Mechanism Design for Auctions with Externalities," Sonderforschungsbereich 504 Publications 97-04, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  2. ehiel, Philippe & Benny Moldovanu & Ennio Stacchetti, 1994. "How (not) to sell nuclear weapons," Discussion Paper Serie B 288, University of Bonn, Germany.
  3. McAfee, R. Preston & McMillan, John, 1988. "Multidimensional incentive compatibility and mechanism design," Journal of Economic Theory, Elsevier, vol. 46(2), pages 335-354, December.
  4. d'ASPREMONT, Claude & GERARD-VARET, Louis-André, . "Incentives and incomplete information," CORE Discussion Papers RP 354, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
  6. Kunreuther, Howard & Kleindorfer, Paul R, 1986. "A Sealed-Bid Auction Mechanism for Siting Noxious Facilities," American Economic Review, American Economic Association, vol. 76(2), pages 295-99, May.
  7. Ingberman Daniel E., 1995. "Siting Noxious Facilities: Are Markets Efficient?," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages S20-S33, November.
  8. Bruno S. Frey & Felix Oberholzer-Gee, 1996. "Fair siting procedures: An empirical analysis of their importance and characteristics," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(3), pages 353-376.
  9. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
  10. Makowski Louis & Mezzetti Claudio, 1994. "Bayesian and Weakly Robust First Best Mechanisms: Characterizations," Journal of Economic Theory, Elsevier, vol. 64(2), pages 500-519, December.
  11. Frey, Bruno S & Oberholzer-Gee, Felix & Eichenberger, Reiner, 1996. "The Old Lady Visits Your Backyard: A Tale of Morals and Markets," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1297-1313, December.
  12. Sullivan, Arthur M., 1992. "Siting noxious facilities: A siting lottery with victim compensation," Journal of Urban Economics, Elsevier, vol. 31(3), pages 360-374, May.
  13. Howard Kunreuther & Doug Easterling, 1996. "The role of compensation in siting hazardous facilities," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(4), pages 601-622.
  14. Kunreuther, Howard & Kleindorfer, Paul & Knez, Peter J. & Yaksick, Rudy, 1987. "A compensation mechanism for siting noxious facilities: Theory and experimental design," Journal of Environmental Economics and Management, Elsevier, vol. 14(4), pages 371-383, December.
  15. Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, EconWPA, revised 28 Apr 1998.
  16. O'Sullivan Arthur, 1993. "Voluntary Auctions for Noxious Facilities: Incentives to Participate and the Efficiency of Siting Decisions," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages S12-S26, July.
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