| When a nonpoint source pollution process involves many polluters, each taking his own contribution to aggregate pollution to be negligible, ambient-based policies become ineffective due to lack of strategic interactions between dischargers. We offer a regulation mechanism for this case. The mechanism consists of inter-period and intra-period components. The first exploits ambient (aggregate) information to derive the optimal pollution and aggregate emission processes and the ensuing social price of emission. The intra-period mechanism takes as given the social price of emission and implements the optimal output-abatement-emission allocation across the heterogenous, privately informed firms in each time period. The mechanism gives rise to the full... |
