Fully Decentralized Solutions for Pollution Abatement

In river systems, costly upstream pollution abatement creates downstream welfare gains. Without a central authority to enforce such abatement, the welfare gains can only be realized if downstream regions compensate for the upstream abatement. We develop a model that makes explicit the impact of pollution on water quality and production benefits. Furthermore, we propose the "Commit and Bargain" mechanism, a decentralized solution that yields welfare-maximizing abatement even in the absence of an informed trusted third party. We show how to implement the mechanism through a smart contract running on a blockchain and discuss the benefits of such a solution