Menus of price-quantity contracts for inducing the truth in environmental regulation

Ratna K. Shrestha

Journal of Environmental Economics and Management, 2017, vol. 83, issue C, 1-7

Abstract: Many authors have proposed mechanisms to induce regulated polluting firms to truthfully reveal their private information. This paper proposes an alternative scheme in which the regulator offers each firm a menu of linear price-quantity contracts; faced with this menu, each firm′s dominant strategy is to truthfully report its private information and self-select the contract that is ex post efficient. The proposed menu schedule that is more elastic than the firm′s residual marginal damage function engenders a positive quantity effect, thereby counterbalancing the firm′s incentive to misreport prompted by the linearity of price. Due to its built-in price quantity structure, the scheme performs as designed regardless of the elasticities of marginal damage and demand functions.

Keywords: Menus; Dominant strategy; Residual damage; Pecuniary externality (search for similar items in EconPapers)
JEL-codes: D82 H23 L51 Q58 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:83:y:2017:i:c:p:1-7

DOI: 10.1016/j.jeem.2016.11.008

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