A Damage Based Tax Mechanism for Regulation of Non-Point Emissions

In a recent paper Segerson (1988) proposed a novel incentive mechanism for stochastic non-point emissions based on ambient pollution concentrations in nature. For specification of the mechanism when the damage function is nonlinear, the regulator must know polluters cost and emission functions. The mechanism also gives incentives to form coalitions among polluters, which, if they are formed, render the mechanism inefficient. In this paper we propose a revised mechanism which eliminates the need for knowledge of polluters cost and emission functions and reduces the probability of coalition forming. A standards and pricing version of the revised mechanism with both properties mentioned is also developed.