Voluntary Cost-Sharing for Environmental Risk Reduction: A Pollution Abatement Case Study

This paper develops the notion of voluntary cost-sharing as a paradigm for ameliorating pollution: polluters and sufferers can choose to share the costs of pollution abatement and participate together in reducing pollution. If both polluters and sufferers each care about the state of the environment but have limited resources, the issue is one of optimality: a better level of environmental quality could be achieved if polluters and sufferers in a locale share costs of abatement. An example—nitrogen pollution due to fertilizer for food—is used to demonstrate that a preferred outcome can be obtained with cost sharing among polluters and consumers as compared to a “Polluter Pays” outcome. Input taxes and ambient subsidies or taxes are also relevant policy tools with cost-sharing.