Verifiable and non-verifiable anonymous mechanisms for regulating a polluting monopolist |
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| Institution: | 1. School of Public Policy, Pepperdine University, 24255 Pacific Coast Highway, Malibu, CA 90263, United States;2. Department of Economics, College of William and Mary, Morton Hall, Williamsburg, VA 23187-8795, United States;1. Paris School of Economics - University Paris 1, France;2. Department of Economics, Faculty of Economics and Business, University of Chile, Chile;1. School of Economics and Management, Beihang University, Beijing, 100191, China;2. Key Laboratory of Complex System Analysis, Management and Decision (Beihang University), Ministry of Education, Beijing 100191, China;3. Division of Environmental Technology and Management, Department of Management and Engineering, Linköping University, 581 83, Linköping, Sweden;1. National Oceanic and Atmospheric and Administration, National Marine Fisheries Service, Southwest Fisheries Science Center, 8901 La Jolla Shores Drive, La Jolla, CA 92037, USA;2. Department of Sociology, Environmental and Business Economics, Centre for Fisheries & Aquaculture Management & Economics (FAME), University of Southern Denmark, Denmark;1. Toulouse School of Economics (LERNA, UT1C, CNRS), 21 Allée de Brienne, 31015 Toulouse Cedex 6, France;2. University of Sheffield, United Kingdom;3. Karlstad University, Sweden;4. Health Metrics, The Sahlgrenska Academy, University of Gothenburg, Sweden |
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| Abstract: | Optimal regulation of a polluting natural monopolist must correct for both external damages and market power to achieve a social optimum. Existing non-Bayesian regulatory methods require knowledge of the demand function, while Bayesian schemes require knowledge of the underlying cost distribution. We introduce mechanisms adapted to use less information. Our Price-based Subsidy (PS) mechanisms give the firm a transfer that matches or approximates the incremental surplus generated each period. The regulator need not observe the abatement activity or know the demand, cost, or damage functions of the firm. All of the mechanisms induce the firm to price at marginal social cost, either immediately or asymptotically. |
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