Pollution Permits : Efficiency by Design

The annual adverse effects of pollution are on the order of 10% of world GDP. Many approaches are used or have been proposed to control the growing pollution problem, but none of them allows for efficient pollution control in settings in which the marginal cost of pollution is increasing and polluters are better informed than regulators about the costs of abatement. We propose a simple primary market mechanism, True-Cost Pay as Bid, that implements efficient pollution control and does not depend on how much information the regulators have about the abatement costs