Regulation via the Polluter‐Pays Principle

23 Pages Posted: 10 Jun 2016

See all articles by Stefan Ambec

Stefan Ambec

National Institute for Agricultural Research (INRA) - GAEL

Lars Ehlers

University of Montreal - Département de Sciences Economiques and CIREQ

Date Written: June 2016

Abstract

We consider the problem of regulating an economy with environmental pollution. We examine the distributional impact of the polluter‐pays (PP) principle which requires that any agent compensates all other agents for the damages caused by his or her (pollution) emissions. With constant marginal damages we show that regulation via the PP principle leads to the unique welfare distribution that induces non‐negative individual welfare change and renders each agent responsible for his or her pollution impact. We extend both the PP principle and this result to increasing marginal damages due to pollution. We also compare the PP principle with the Vickrey–Clark–Groves scheme.

Suggested Citation

Ambec, Stefan and Ehlers, Lars, Regulation via the Polluter‐Pays Principle (June 2016). The Economic Journal, Vol. 126, Issue 593, pp. 884-906, 2016, Available at SSRN: https://ssrn.com/abstract=2793579 or http://dx.doi.org/10.1111/ecoj.12184

Stefan Ambec (Contact Author)

National Institute for Agricultural Research (INRA) - GAEL ( email )

BP 47
38040 Grenoble
France

Lars Ehlers

University of Montreal - Département de Sciences Economiques and CIREQ ( email )

C.P. 6128, succursale Centre-Ville
Montreal, Quebec H3C 3J7
Canada

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