Citation

Discussion Paper Details

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Full Details

Title: Pollution Claim Settlements Reconsidered: Hidden Information and Bounded Payments

Author(s): Susanne Goldl�cke and Patrick W. Schmitz

Publication Date: April 2016

Keyword(s): Coasean bargaining, externalities, hidden information, incentive contracting and limited liability

Programme Area(s): Industrial Organization

Abstract: A pollution-generating firm (the principal) can offer a contract to an agent (say, a nearby town) who has the right to be free of pollution. Subsequently, the agent privately learns the disutility caused by pollution. Then a production level and a payment from the principal to the agent are implemented as contractually specified. We explore the implications of a non-negativity constraint on the payment. For low cost types there is underproduction, while for high cost types there is overproduction. Hence, there may be too much pollution compared to the first-best solution (which is in contrast to standard adverse selection models).

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11217

Bibliographic Reference

Goldl�cke, S and Schmitz, P. 2016. 'Pollution Claim Settlements Reconsidered: Hidden Information and Bounded Payments'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11217