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Towards fully decentralized environmental regulation

Author

Listed:
  • Jens Gudmundsson

    (University of Copenhagen)

  • Jens Leth Hougaard

    (University of Copenhagen)

  • Erik Ansink

    (Vrije Universiteit Amsterdam)

Abstract

We take a decentralized approach to regulating environmental pollution in set- tings where each agent’s pollution possibly affects all others. There is no central agency to enforce pollution abatement or coordinate monetary transfers. Moreover, agents possess private information, which precludes deducing efficient abatement in general. We propose to implement transfer schemes through smart contracts to allow beneficiaries to compensate for abatement. We characterize all schemes that induce efficient abatement in unique dominant-strategy equilibrium. Moreover, appealing to classical fairness tenets, we pin down the “beneficiaries-compensates principle†. Supporting this principle through smart contracts provides a promising step towards decentralized coordination on environmental issues.

Suggested Citation

  • Jens Gudmundsson & Jens Leth Hougaard & Erik Ansink, 2024. "Towards fully decentralized environmental regulation," Tinbergen Institute Discussion Papers 24-035/VIII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20240035
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    References listed on IDEAS

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    More about this item

    Keywords

    Pollution; Decentralization; Smart contracts; Beneficiaries-compensates principle;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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