Dynamic regulation of nonpoint source pollution when the number of emitters is large

When a nonpoint source pollution process involves many polluters, each taking his own contribution to aggregate pollution to be negligible, ambient-based policies become ineffective due to lack of strategic interactions between dischargers. We offer a regulation mechanism for this case. The mechanism consists of inter-period and intra-period components. The first exploits ambient (aggregate) information to derive the optimal pollution and aggregate emission processes and the ensuing social price of emission. The intra-period mechanism takes as given the social price of emission and implements the optimal output-abatement-emission allocation across the heterogenous, privately informed firms in each time period. The mechanism gives rise to the full information outcome when the social cost of transfers is nil. A positive social cost of transfers decreases both output and abatement in each time period, though the effect on emission is ambiguous.


Issue Date:
2012
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/122124
Total Pages:
42
JEL Codes:
C61; D82; H23; L51; Q58




 Record created 2017-04-01, last modified 2017-08-26

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