Winery wastewater pollution can be reduced by a Water Agency through economic instruments such as taxes and subsidies. According to the «efficiency without optimality » approach, which aims at reaching a sub-optimal environmental objective at the lowest cost to Society, these instruments should act as an incentive for firms to adopt the best available pollution control technology. As there exists little knowledge of pollution damage functions, the computation of the water agencies’pollution charges is based on pollution abatement costs instead. In order to determine the level of charges, the Water Agency first computes the necessary expenses in terms of investment subsidies (for public and industrial treatment plants) and then determines the costs required to balance its budget. In defining its policy objectives, the Water Agency acts under conditions of information asymmetry. For instance, the Agency does not really know the pollution abatement cost at the sector level or for different kinds of technology. As a result, its policy, although effective because pushing the producers to invest, is inefficient: the cost to Society is higher than the lowest possible cost, and there is a poor redistribution of subsidies among the polluters. In order to reduce this asymmetry of information of the Water Agency (regarding pollution;abatement costs), we propose a sector-based approach. This paper studies the wine producers’-response — his choice of a wastewater abatement technology — to the use of economic instruments defined by the Water Agency in the south of France. It is assumed that the producers/polluters behave rationally and minimise their pollution control costs. In the second part of the paper, we will look at the individual firm, underlying the importance of fixed costs for the choice of a wastewater control strategy. Consequently we will propose a modified model of polluter’s behaviour in which fixed costs are considered and the underlying cost function follows the law of diminishing returns. The analysis of the individual choice between bearing pollution abatement costs (technical investment) and paying pollution costs (taxes) allows us to examine, in addition, the possibility of a partial treatment of wastewater.


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