Getting Polluters to Tell the Truth
We study the problem of a regulator who must control the emissions of a given pollutant from a series of industries when the firms' abatement costs are unknown. We develop a mechanism in which the regulator asks firms to report their abatement costs and implements the most stringent emissions standard consistent with the firms' declarations. He also inspects one of the firms in each industry which declared the cost structure consistent with the least stringent emissions standard and with an arbitrarily small probability, he discovers whether the report was true or not. The firm is punished with an arbitrarily small fine if and only if its report was false. This mechanism is simple, is implementable in practice, its unique equilibrium is truth telling by firms, it implements the first best pollution standards and shares some features of the regulatory processes actually observed in reality.
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- Matthew O. Jackson, 1992.
"Implementation in Undominated Strategies: A Look at Bounded Mechanisms,"
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- Matthew 0. Jackson, 1989. "Implementation in Undominated Strategies - A Look at Bounded Mechanisms," Discussion Papers 833, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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"Nash Implementation Using Undominated Strategies,"
649, California Institute of Technology, Division of the Humanities and Social Sciences.
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"Undominated Nash Implementation in Bounded Mechanisms,"
966, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Jackson Matthew O. & Palfrey Thomas R. & Srivastava Sanjay, 1994. "Undominated Nash Implementation in Bounded Mechanisms," Games and Economic Behavior, Elsevier, vol. 6(3), pages 474-501, May.
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