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2011

Pepperdine University

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Full-Text Articles in Policy Design, Analysis, and Evaluation

Verifiable And Non-Verifiable Anonymous Mechanisms For Regulating A Polluting Monopolist, James Prieger, Nicholas J. Sanders Aug 2011

Verifiable And Non-Verifiable Anonymous Mechanisms For Regulating A Polluting Monopolist, James Prieger, Nicholas J. Sanders

School of Public Policy Working Papers

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 ...