Towards fully decentralized environmental regulation

Jens Gudmundsson, Jens Leth Hougaard and Erik Ansink
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Jens Leth Hougaard: University of Copenhagen

No 24-035/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We take a decentralized approach to regulating environmental pollution in set- tings where each agent’s pollution possibly affects all others. There is no central agency to enforce pollution abatement or coordinate monetary transfers. Moreover, agents possess private information, which precludes deducing efficient abatement in general. We propose to implement transfer schemes through smart contracts to allow beneficiaries to compensate for abatement. We characterize all schemes that induce efficient abatement in unique dominant-strategy equilibrium. Moreover, appealing to classical fairness tenets, we pin down the “beneficiaries-compensates principle†. Supporting this principle through smart contracts provides a promising step towards decentralized coordination on environmental issues.

Keywords: Pollution; Decentralization; Smart contracts; Beneficiaries-compensates principle (search for similar items in EconPapers)
JEL-codes: C72 D62 H23 Q52 (search for similar items in EconPapers)
Date: 2024-05-23
New Economics Papers: this item is included in nep-des, nep-gth, nep-reg and nep-res
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