Citizen's Demand for Permits and Incentive Compatible Mechanisms for Pollution Control

28 Pages Posted: 14 Nov 2005

See all articles by Daniel J. English

Daniel J. English

University of Richmond

Andrew Yates

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: April 3, 2006

Abstract

An interesting feature of pollution permit markets is that citizens may purchase permits to directly lower the levels of pollution. We analyze the effects of citizens' demand for permits on incentive compatible mechanisms for pollution control that are based on permit markets. We show that Kwerel's mechanism (Review of Economic Studies - 1977) is not incentive compatible. We show that two other mechanisms - the simple mechanism and the minimum-price mechanism - are at least weakly incentive compatible. Furthermore, the minimum-price mechanism is robust to free-riding among citizens and uncertainty about damages from pollution.

Keywords: pollution permits, incentive compatible, regulation, environment

JEL Classification: Q2, D89

Suggested Citation

English, Daniel J. and Yates, Andrew, Citizen's Demand for Permits and Incentive Compatible Mechanisms for Pollution Control (April 3, 2006). Available at SSRN: https://ssrn.com/abstract=844265 or http://dx.doi.org/10.2139/ssrn.844265

Daniel J. English

University of Richmond ( email )

28 Westhampton Way
Richmond, VA 23173
United States

Andrew Yates (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

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