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Study on Pollution Cost Control Model under Asymmetric Information Based on Principal Agent

Author

Listed:
  • Wang Lina

    (School of Economics and Management, Hainan Normal University, Haikou571158, China)

  • Milis Koen

    (Campus Vesta, Education Management Industry, Brussels, Belgium)

  • Poelmans Stephan

    (Research Centre for Information Systems Engineering, Faculty of Economics and Business, KU Leuven, Warmoesberg 26, 1000Brussel, Belgium)

Abstract

Pollution cost control is key to solve pollution problem. The paper takes pollution control cost of pollution control contract between management authority and pollutant discharge enterprise as research object, considers pollution control quality level, pollution control quality inspection and pollution control cost model, and establishes pollution control cost model of management authority and pollutant discharge enterprise, including rational constraints of pollutant discharge enterprise. And it analyzes principal-agent relationship between the two under condition of asymmetric information, and un-observability of pollution control level is shown as hiding information of sewage enterprises. In essence, it is problem of adverse selection in principal-agent. Pollution control cost of management is objective function. The first order condition of pollution control cost of sewage enterprise is transformed into state space equation, and optimal control of problem is solved by using maximum principle. In particular, management authority, as principal, uses pollution control provisions to reward, punish and encourage pollutant discharge enterprises as agents.

Suggested Citation

  • Wang Lina & Milis Koen & Poelmans Stephan, 2021. "Study on Pollution Cost Control Model under Asymmetric Information Based on Principal Agent," Journal of Systems Science and Information, De Gruyter, vol. 9(5), pages 549-557, October.
    • Handle: RePEc:bpj:jossai:v:9:y:2021:i:5:p:549-557:n:4
    DOI: 10.21078/JSSI-2021-549-09
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    References listed on IDEAS

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