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A Montero auction mechanism for regulating unobserved use of the commons

Lars Hansen

No 2015/07, IFRO Working Paper from University of Copenhagen, Department of Food and Resource Economics

Abstract: Regulating externalities from the use of common resources is often hampered by the regulator’s inability to accurately observe individual firms’ resource use. Allocating resource use through taxes on aggregate use, which often can be observed, has been suggested (Segerson, 1988); however, these taxes are vulnerable to collusion and strategic behavior and they generate inefficient entry-exit incentives. To address these disadvantages, I suggest using a Montero (2008)-type auction mechanism to allocate licenses for unobserved use of common resources and to induce compliance with these licenses through an enforcement tax on the differences between aggregated licenses issued and observed aggregated resource use.

Keywords: incentive mechanisms; unobservable resource use; non-point emissions; truthful revelation (search for similar items in EconPapers)
JEL-codes: D62 D82 L51 Q25 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2015-07
New Economics Papers: this item is included in nep-env
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