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A Montero payment mechanism for regulating non-point pollution emissions

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  • Hansen, Lars Gårn

Abstract

Regulating externalities from pollution is difficult when the regulator can not observe individual firms’ externality generation. Taxing the aggregate emissions of a group of polluters, which can often be observed, has been suggested. However, these taxes are vulnerable to collusion and strategic behavior, and they generate distorted entry-exit incentives. To address these disadvantages, I suggest combining an aggregate tax mechanism with the quota payment mechanism suggested by Montero for allocating emission quotas. The suggested tax system induces compliance with quotas and solves the noted problems for a subset of these regulation problems.

Suggested Citation

  • Hansen, Lars Gårn, 2020. "A Montero payment mechanism for regulating non-point pollution emissions," Resource and Energy Economics, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:resene:v:61:y:2020:i:c:s0928765519300107
    DOI: 10.1016/j.reseneeco.2020.101166
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    More about this item

    Keywords

    Non-point pollution; Incentive regulation; Truthful revelation;
    All these keywords.

    JEL classification:

    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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