Local Pollution in Federal Systems

Per Andersen () and Frank Jensen ()

Environmental & Resource Economics, 2003, vol. 26, issue 3, 417-428

Abstract: It is widely accepted that decentralized control of local pollution is inefficient if the central and the local authorities are imperfectly informed. This paper shows how the central authority can introduce a flexible grant-in-aid system that induces the local authority to use a weighted combination of local and central information when the local authority suffers from confirmatory bias. If the central authority is highly uncertain about the environmental effects of a specific pollutant, the tax/subsidy scheme can be designed to allow local information to play an essential role in the environmental policy. If the central authority is certain that a pollutant must not exceed a specific limit, the tax/subsidy scheme can be designed to allow local information little influence on the environmental policy. Copyright Kluwer Academic Publishers 2003

Keywords: central information; federal systems and local information (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1023/B:EARE.0000003596.02533.81

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