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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"Undominated Nash Implementation in Bounded Mechanism,"
754, California Institute of Technology, Division of the Humanities and Social Sciences.
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- Matthew O. Jackson, 1990. "Undominated Nash Implementation in Bounded Mechanisms," Discussion Papers 966, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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- Anil Arya & Jonathan Glover, . "Maintaining Auditor Independence," Corporate Finance & Organizations _017, Ohio State University.
- Matthew 0. Jackson, 1989.
"Implementation in Undominated Strategies - A Look at Bounded Mechanisms,"
833, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Matthew O. Jackson, 1992. "Implementation in Undominated Strategies: A Look at Bounded Mechanisms," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 757-775.
- Kim-Sau Chung & Jeffrey C. Ely, 2003.
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Econometric Society, vol. 71(3), pages 857-871, 05.
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- Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
- Ignacio Ortuño-Ortin & John E. Roemer, 1993. "Politically Realistic Implementation With Inspection: The Equity-Honesty-Welfare Trade-Off," Economics and Politics, Wiley Blackwell, vol. 5(3), pages 255-270, November.
- Matthew O. Jackson & Sanjay Srivastava, 1992. "Characterizations of Game Theoretic Solutions which Lead to Impossibility Theorems," Discussion Papers 1004, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Palfrey, Thomas R & Srivastava, Sanjay, 1991. "Nash Implementation Using Undominated Strategies," Econometrica, Econometric Society, vol. 59(2), pages 479-501, March.
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- Dilip Mookherjee & Ivan Png, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 399-415.
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