Nonpoint Source Pollution When Polluters Might Cooperate

Katrin Millock and François Salanié

The B.E. Journal of Economic Analysis & Policy, 2005, vol. 5, issue 1, 27

Abstract: In a model of nonpoint source pollution, we extend the theory of ambient taxes to the case when polluters might cooperate. We show that regulation through ambient taxes is severely constrained when the degree of cooperation among polluters is unknown to the regulator. On the other hand, if the regulator can invest in costly monitoring of emissions, then the optimal regulation offers a low ambient tax to cooperative groups and an optimal but costly individual emission tax to non-cooperative groups. This mechanism also has attractive properties when risk-aversion is introduced.

Keywords: ambient tax; cooperation; environmental regulation; group moral hazard; incomplete information (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (14)

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DOI: 10.1515/1538-0653.1233

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