Nonpoint source pollution: experiments on the average Pigouvian tax under costly communication

The ‘average Pigouvian tax’ (APT) was proposed to reduce the financial burden imposed by the standard ambient tax. This instrument consists of a standard ambient tax divided by the number of firms and it requires polluters to cooperate in order to achieve the social optimum. To enable polluters to cooperate, communication is allowed in most of the experimental treatments. We introduce different types of communication: cheap talk, exogenous costly communication and endogenous costly communication. Our experiment confirms that under cheap talk, the APT promotes a reduction in polluters’ emissions. In contrast, under costly communication, the APT reduces group emissions to a lesser extent.

Nonpoint Source Pollution When Polluters Might Cooperate

In a model of nonpoint source pollution, we extend the theory of ambient taxes to the case when polluters might cooperate. We show that regulation through ambient taxes is severely constrained when the degree of cooperation among polluters is unknown to the regulator. On the other hand, if the regulator can invest in costly monitoring of emissions, then the optimal regulation offers a low ambient tax to cooperative groups and an optimal but costly individual emission tax to non-cooperative groups. This mechanism also has attractive properties when risk-aversion is introduced.

Accounting for Spatial Characteristics of Watersheds in Evaluating Water Pollution Abatement Policies

This study evaluates three agricultural nonpoint pollution abatement policies: regulating the spatial pattern of agricultural activities, ambient tax, and abatement tax/subsidy. All three policies incorporate spatial characteristics of agricultural emission loading and movement for an agricultural watershed in the Midwest. The effects of spatial variation in natural conditions and landscape features on agricultural emissions and crop yield are evaluated using a newly developed biophysical simulation model and experimental data. While the policies are equally cost effective in reducing agricultural nonpoint source pollution, their implementation feasibility is quite different.