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Article
Verifiable and Non-Verifiable Anonymous Mechanisms for Regulating a Polluting Monopolist
School of Public Policy Working Papers
  • James Prieger, Pepperdine University
  • Nicholas J. Sanders
Document Type
Article
Publication Date
8-25-2011
Abstract

Optimal regulation of a polluting natural monopolist must correct for both external damages and market power to achieve a social optimum. Existing non-Bayesian regulatory methods require knowledge of the demand function, while Bayesian schemes require knowledge of the underlying cost distribution. We introduce mechanisms adapted to use less information. Our Price-based Subsidy (PS) mechanisms give the firm a transfer that matches or approximates the incremental surplus generated each period. The regulator need not observe the abatement activity or know the demand, cost, or damage functions of the firm. All of the mechanisms induce the firm to price at marginal social cost, either immediately or asymptotically.

Citation Information
James Prieger and Nicholas J. Sanders. "Verifiable and Non-Verifiable Anonymous Mechanisms for Regulating a Polluting Monopolist" (2011)
Available at: http://works.bepress.com/james_prieger/16/