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A Note on Pollution Regulation With Asymmetric Information

Author

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  • Alberto Pench

    (Department of Political Sciences, University of Pisa)

Abstract

The paper addresses the problem of information asymmetry between a regulator and the polluting firms and proposes a very simple mechanism where the regulator is free to choose, without communicating in advance to the firms, between two instruments: an effluent fee or a standard: as a result in a real world setting this uncertainty might induce firms to a truthful revelation. Moreover, under the assumption of linear marginal abatement or marginal social damage functions, in many cases the resulting optimal behaviour might be an under reporting for some firms and an over reporting for others so that the resulting marginal aggregate benefit function might be not so far from the true one and the aggregate pollution level attained by the mechanism not so far from optimal.

Suggested Citation

  • Alberto Pench, 2016. "A Note on Pollution Regulation With Asymmetric Information," Working Papers 2016.20, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2016.20
    as

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    References listed on IDEAS

    as
    1. Juan-Pablo Montero, 2008. "A Simple Auction Mechanism for the Optimal Allocation of the Commons," American Economic Review, American Economic Association, vol. 98(1), pages 496-518, March.
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    3. Roberts, Marc J. & Spence, Michael, 1976. "Effluent charges and licenses under uncertainty," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 193-208.
    4. Varian, Hal R, 1994. "A Solution to the Problem of Externalities When Agents Are Well-Informed," American Economic Review, American Economic Association, vol. 84(5), pages 1278-1293, December.
    5. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
    6. Bulckaen, Fabrizio, 1997. "Emissions Charge and Asymmetric Information: Consistently a Problem?," Journal of Environmental Economics and Management, Elsevier, vol. 34(1), pages 100-106, September.
    7. Evan Kwerel, 1977. "To Tell the Truth: Imperfect Information and Optimal Pollution Control," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 595-601.
    8. John Duggan & Joanne Roberts, 2002. "Implementing the Efficient Allocation of Pollution," American Economic Review, American Economic Association, vol. 92(4), pages 1070-1078, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Effluent Fee; Standards; Asymmetric Information; Truthful Revelation;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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