On the design of incentive mechanisms in environmental policy

Klaus Conrad and Jianmin Wang

Environmental & Resource Economics, 1993, vol. 3, issue 3, 245-262

Abstract: The objective of this paper is to present environmental policy as a simple game in two stages within a principal-agent framework. At the outset the authority adopts a transfer payment rule. Then the firms react by carrying out abatement activities, based on their chosen levels of emission and output. Next the authority measures the emissions (and residual profit of the industry) and revises the level of its instrument. Then the game starts again. Our purpose is to narrow the scope of ad hoc incentive schemes by characterizing families of optimal linear schemes. Copyright Kluwer Academic Publishers 1993

Keywords: Incentives; Principal-agent; environmental policy; emission taxes; abatement subsidies (search for similar items in EconPapers)
Date: 1993
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DOI: 10.1007/BF00313161

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