Economic instruments for emission abatement under appreciable technological indivisibilities

Nir Becker, Mira G. Baron, Mordechai Shechter

Research output: Contribution to journalArticlepeer-review


The paper explores the performance of decentralized incentives when abatement involves technological indivisibilities. Technologically, pollution abatement is often carried out as a discrete process, if pollution reduction involves relatively large-scale investments in emission abatement equipment.Consequently, the firm's response to decentralized economic incentives for pollution abatement is affected by the indivisible property of the technology. It can be shown that in such cases efficiency may not be realized. Installing an abatement device may entail "too much" or "too little" investment compared with the eficient solution. To partially remedy this problem, an incentive scheme which incorporates a fine (penalty) on pollution-induced damages is proposed in this paper. Essentially, as in the case of the command and control approach, the mechanism imposes a fine when firms do not meet an aggregate (e.g., a "bubble") emission level. The fine is set as a proportion of the polluting firm's share of the total excess damage inflicted when the standard has been violated. The paper explores alternative outcomes under this scheme in the framework of a non-cooperative game. The outcomes under command and control (uniform percentage reductions), taxes, pollution permits and the fine scheme are illustrated with data from the haifa area in northern Israel. They are compared with the social planner solution in terms of efficiency (achieving a given standard at minimum cost) and the volume of transfer cost.

Original languageEnglish
Pages (from-to)263-284
Number of pages22
JournalEnvironmental and Resource Economics
Issue number3
StatePublished - Jun 1993

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law


Dive into the research topics of 'Economic instruments for emission abatement under appreciable technological indivisibilities'. Together they form a unique fingerprint.

Cite this