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Getting Polluters to Tell the Truth

Marcelo Caffera () and Juan Dubra ()

No 1606, Documentos de Trabajo/Working Papers from Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo.

Abstract: We study the problem of a regulator who must control the emissions of a given pollutant from a series of industries when the firmsíabatement costs are unknown. We develop a mechanism in which the regulator asks firms to report their abatement costs and implements the most stringent emissions standard consistent with the firmsí declarations. He also inspects one of the Örms in each industry which declared the cost structure consistent with the least stringent emissions standard and with an arbitrarily small probability, he discovers whether the report was true or not. The firm is punished with an arbitrarily small fine if and only if its report was false. This mechanism is simple, is implementable in practice, its unique equilibrium is truth telling by firms, it implements the first best pollution standards and shares some features of the regulatory processes actually observed in reality.

Keywords: Efficient Emissions Standards; Command and Control; Truth Telling; Full Nash Implementation. (search for similar items in EconPapers)
JEL-codes: D02 D78 D82 Q20 Q52 Q53 (search for similar items in EconPapers)
Date: 2016
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http://www.um.edu.uy/docs/Getting_Polluters_to_Tell_the_Truth.pdf (application/pdf)

Related works:
Working Paper: Getting Polluters to Tell the Truth (2005) Downloads
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