This paper offers a new mechanism in order to Nash-implement a Pareto optimal level of ambient pollution. As usuas in the literature on non point source pollution, the proposed scheme is not conditional on individual emissions, since they are not observable; rather it is conditional on aggregate emission. But the novelty here is that we do not assume the regulator knows the agents’preferences, with which he could identify the target level of aggregate emission. Our mechanism dispenses with this information, yet it achieves Pareto optimality provided that the number of agents involved in the problem is known.
Regulating ambient pollution when social costs are unknown
14 January 2014