Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 04/04: Circumventing Information and Incentive Problems in Pollution Control

Helge Berglann ()
Additional contact information
Helge Berglann: Norwegian Agricultural Economics Research Institute, Postal: P.O.Box 8024 Dep, 0030 OSLO, Norway

Abstract: To mitigate pollution this note advocates a two-component system. The polluter pays for the damage he causes and for the opportunity to do so. The main motivation is to achieve Pareto e¢ ciency while avoiding problems caused by asymmetric information and strategic moves. The proposed regime induces each polluter to solve the same optimization problem as an altruistic planner. Since the monetary burden of the scheme matches a linear Pigouvian tax, it does not encourage firms to split or merge.

Keywords: externalities; asymmetric information; Pareto efficiency; environmental policy; linear Pigouvian tax; Individual Transferable Fees

JEL-codes: D82; H21; Q20

6 pages, June 10, 2004

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