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Allocating environmental costs among heterogeneous sources: The linear damage equivalent mechanism

Laurence Kranich () and Carmen Arguedas

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: A group of firms has to divide the costs associated with environmental damages jointly generated as a by-product of their heterogeneous production activities. We propose a specific procedure to assign costs, the Linear Damage Equivalent Mechanism (LDE), which satisfies several appealing strategic and axiomatic properties. The LDE induces a strategic game that has an unambiguous noncooperative prediction, a unique Nash equilibrium which is also robust to coalitional deviations; moreover, the equilibrium is efficient. Among its other properties, we find that the LDE is immune to arbitrary changes in the units of account of the outputs.

Keywords: Environmental; damages; Cost-sharing; Heterogeneous; sources (search for similar items in EconPapers)
Date: 1997-07
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