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Payments from Households to Distant Polluting Firms

Dijkstra, Bouwe R.

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We investigate a novel way to encourage separation between firms, causing local pollution, and their victims (households): payments from households to distant polluting firms. These payments do not require monitoring of firms’ emissions or their abatement costs. In our model, households and firms can choose from two locations (A and B, with A larger than B). Households incur environmental damage from firms in the same location. Under laissez faire, payments from households in one location (say A) to firms in the other location (say B) will prompt firms to move from A to B and to stay there, thus reducing damage to households in A. The maximum that households are willing to pay temporarily is the amount that currently makes them indifferent between A and B. The payments make A less attractive to firms as well as to households. The unique positive-payment equilibrium implements the global welfare optimum where laissez faire does not. We examine from which starting points this payment equilibrium can be reached.


Dijkstra, B. R. (2022). Payments from Households to Distant Polluting Firms. Environmental and Resource Economics, 82, 681-715.

Journal Article Type Article
Acceptance Date Mar 26, 2022
Online Publication Date May 10, 2022
Publication Date 2022-07
Deposit Date Apr 25, 2022
Publicly Available Date May 11, 2023
Journal Environmental and Resource Economics
Print ISSN 0924-6460
Electronic ISSN 1573-1502
Publisher Springer Verlag
Peer Reviewed Peer Reviewed
Volume 82
Pages 681-715
Keywords Management, Monitoring, Policy and Law; Economics and Econometrics
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