A Procedure for Negotiating Pollution Reduction under Information Asymmetry. Surface Water Quality Case

This paper considers an alternative approachto surface water quality management whensociety is faced with the need to reduce waterpollution in a region with a complicatedregulatory environment. The paper is focusedon a specific kind of negotiation betweenpolluters and an authority, leading toresolution of the problem when there is theinformation asymmetry between the authorityand the polluters, i.e., the true pollutionabatement costs are known to the pollutersonly. This paper reports a laboratory experimentalcase prepared at the Department ofEnvironmental Economics, the University ofEconomics in Prague. The comparison withtheoretical computed first-best results underconditions of full information is included.Political and economic aspects of thesuggested approach are also discussed. Copyright Kluwer Academic Publishers 2003