Hazardous Facility Siting When Cost Information is Private: An Application of Multidimensional Mechanism Design
The siting of noxious facilities often involves externalities that extend beyond the border of the community selected as a site. Thus, the private information of each community is potentially a vector of costs comprising a cost for each of the possible sites. I characterize the conditions for the existence of a mechanism that is incentive compatible, individual rational, and budget balancing and show that efficient mechanisms under reasonable assumptions will satisfy these conditions. However, incentive compatibility implies a pattern of compensation payments that often conflicts with commonly held views on how communities should be compensated for environmental costs.
C7 - Game Theory and Bargaining Theory ; D82 - Asymmetric and Private Information ; H23 - Externalities; Redistributive Effects ; Environmental Taxes and Subsidies