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Dynamic incentive regulation of diffuse pollution

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La Nauze, Andrea and Mezzetti, Claudio (2019) Dynamic incentive regulation of diffuse pollution. Journal of Environmental Economics and Management, 93 . pp. 101-124. doi:10.1016/j.jeem.2018.11.009

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Official URL: https://doi.org/10.1016/j.jeem.2018.11.009

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Abstract

Diffuse pollution from agriculture and extractive industries reduces air and water quality and contributes to climate change. We consider a setting in which a regulator must incentivize unobserved abatement given that firms have limited liability, and when they can enter and exit. We demonstrate that a simple dynamic incentive scheme can solve this difficult regulatory problem: firms pay a constant tax and receive rebates following periods of low pollution. We apply the model to water pollution from a fracking operation and simulate the contract to explore the volatility of the firm's payments and the costs of limited liability.

Item Type: Journal Article
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
T Technology > TD Environmental technology. Sanitary engineering
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Nonpoint source pollution, Best management practices (Pollution prevention), Rebates, Incentives in industry
Journal or Publication Title: Journal of Environmental Economics and Management
Publisher: Elsevier
ISSN: 0095-0696
Official Date: January 2019
Dates:
DateEvent
January 2019Published
6 December 2018Available
26 November 2018Accepted
Volume: 93
Page Range: pp. 101-124
DOI: 10.1016/j.jeem.2018.11.009
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
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