Seminar – Environmental regulation without centralized enforcement

We take a decentralized approach to managing environmental pollution in settings where each agent’s pollution possibly affects all others. There is no central agency to enforce pollution abatement or coordinate monetary transfers. Moreover, agents possess private information, which precludes deducing efficient abatement in general. We propose to implement transfer schemes through smart contracts to allow beneficiaries to compensate for abatement. We characterize all schemes that induce efficient abatement in unique dominant-strategy equilibrium. Moreover, appealing to classical fairness tenets, we pin down the “beneficiaries-compensates principle”. Supporting this principle through smart contracts provides a promising step towards decentralized environmental regulation.

Room E0.03