Compensating for environmental damages

This paper examines a situation where a decision-maker determines the appropriate compensation that should be implemented for a given ecological damage. The compensation can be either or both in monetary and environmental units to meet three goals: i) minimization of the cost associated with the compensation, ii) no aggregate welfare loss, iii) minimal environmental compensation requirement. The findings suggest that -in some cases - providing both monetary and environmental compensation can be the cost-minimizing option. Minimal compensation constraints can increase total compensation costs but reduce individual gains and losses relative to the initial situation that arise from heterogeneous tradeoffs between income and environmental quality