Optimal Siting and Sizing of a Noxious Facility

Providing a noxious facility poses two problems previously unexplored together: where to locate it and how large it should be. We propose a mechanism combining some market-like properties with a modified second-price auction. The mechanism selects a host, a facility size, and determines the compensation for hosting the project and how to split it among the non-hosts. To prevent size distortions, the host pays the second-highest bid and receives the market benefits. Truthful bidding is an equilibrium and leads to the globally optimal allocation, is globally optimal, even if communities’ preferences are private information