Regulating Multiple Polluters: Deterrence and Liability Allocation

Charles E Hyde, Gordon Rausser and Leo Simon

International Economic Review, 2000, vol. 41, issue 2, 495-521

Abstract: We consider regulation of multiple polluters when individual emissions are unobservable. The tension between pollution deterrence and funding of remediation is examined under two constraints: that penalty revenues fully fund remediation costs and that the regulator cannot make positive transfers to firms. To isolate the effect of increasing the number of polluters, we compare an industry consisting of a single large firm with one in which many small firms in aggregate mimic the large firm. Contrary to previous findings, both the number of firms and the ability to monitor individual firms affect the welfare of a large class of regulators. Copyright 2000 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 2000
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