A Montero payment mechanism for regulating non-point pollution emissions

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Regulating externalities from pollution is difficult when the regulator can not observe individual firms’ externality generation. Taxing the aggregate emissions of a group of polluters, which can often be observed, has been suggested. However, these taxes are vulnerable to collusion and strategic behavior, and they generate distorted entry-exit incentives. To address these disadvantages, I suggest combining an aggregate tax mechanism with the quota payment mechanism suggested by Montero for allocating emission quotas. The suggested tax system induces compliance with quotas and solves the noted problems for a subset of these regulation problems.
Original languageEnglish
Article number101166
JournalResource and Energy Economics
Number of pages11
Publication statusPublished - 2020

ID: 241364947