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Hazardous Facility Siting When Cost Information is Private: An Application of Multidimensional Mechanism Design

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  • Keith Waehrer

    (U.S. Bureau of Labor Statistics)

Abstract

The siting of noxious facilities often involves externalities that extend beyond the border of the community selected as a site. Thus, the private information of each community is potentially a vector of costs comprising a cost for each of the possible sites. I characterize the conditions for the existence of a mechanism that is incentive compatible, individual rational, and budget balancing and show that efficient mechanisms under reasonable assumptions will satisfy these conditions. However, incentive compatibility implies a pattern of compensation payments that often conflicts with commonly held views on how communities should be compensated for environmental costs.

Suggested Citation

  • Keith Waehrer, 1997. "Hazardous Facility Siting When Cost Information is Private: An Application of Multidimensional Mechanism Design," Game Theory and Information 9702004, University Library of Munich, Germany, revised 22 May 1997.
    • Handle: RePEc:wpa:wuwpga:9702004
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    References listed on IDEAS

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    Cited by:

    1. Ferraz, Eduardo & Mantilla, César, 2020. "Lindahl vs. Lindahl: Optimal siting and sizing of a noxious facility," Working papers 65, Red Investigadores de Economía.
    2. Garrone, Paola & Groppi, Angelamaria, 2012. "Siting locally-unwanted facilities: What can be learnt from the location of Italian power plants," Energy Policy, Elsevier, vol. 45(C), pages 176-186.
    3. Martin Besfamille & Jean-Marie Lozachmeur, 2010. "NIMBY and mechanism design under different constitutional constraints," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 114-132, April.
    4. Jehiel, Philippe & Moldovanu, Benny, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 142, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    5. Rudy Santore, 2014. "Noxious Facilities, Environmental Damages, and Efficient Randomized Siting," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(1), pages 101-116, January.
    6. Ferraz, Eduardo & Mantilla, César, 2023. "A mechanism for the efficient provision of Potential Pareto public goods," Journal of Public Economics, Elsevier, vol. 225(C).

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    More about this item

    Keywords

    mechanism design; efficiency; auction;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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