Ambient-Based Pollution Mechanisms: A Comparison of Homogeneous and Heterogeneous Groups of Emitters
Over the last two decades, ambient-based tax mechanisms have been offered as a potential solution to the problem of nonpoint source water pollution. Previous theoretical analyses suggest that the performance of ambient-based tax mechanisms does not depend on firm characteristics, such as size, whilst policy discussions advocate that such mechanisms are best suited for regulating relatively homogeneous firms. Using controlled laboratory experiments, we provide empirical evidence that the distribution of firm sizes does have a significant impact on observed group decision making and further that heterogeneity has the potential to generate both some relatively desirable outcomes as well as some outcomes that are not attractive. These results suggest that richer theoretical models that capture important strategic interactions and social preferences are needed to better describe laboratory behavior and, by extension, behavior in potential policy settings.
Suter, Jordan, C. A. Vossler, and G. L. Poe. 2009. "Ambient-Based Pollution Mechanisms: A Comparison of Homogeneous and Heterogeneous Groups of Emitters." Ecological Economics 68(6): 1883-1892.
Ambient tax, Nonpoint source pollution, Firm heterogeneity, Laboratory experiments, Dairy farms