Group Decision and Negotiation

, Volume 18, Issue 4, pp 349–368 | Cite as

Voluntary Cost-Sharing for Environmental Risk Reduction: A Pollution Abatement Case Study

  • Edna T. LoehmanEmail author


This paper develops the notion of voluntary cost-sharing as a paradigm for ameliorating pollution: polluters and sufferers can choose to share the costs of pollution abatement and participate together in reducing pollution. If both polluters and sufferers each care about the state of the environment but have limited resources, the issue is one of optimality: a better level of environmental quality could be achieved if polluters and sufferers in a locale share costs of abatement. An example—nitrogen pollution due to fertilizer for food—is used to demonstrate that a preferred outcome can be obtained with cost sharing among polluters and consumers as compared to a “Polluter Pays” outcome. Input taxes and ambient subsidies or taxes are also relevant policy tools with cost-sharing.


Cost-sharing Social efficiency Externality Policy design Cooperation 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Baumol WJ, Oates WE (1990) The theory of environmental policy. Cambridge University Press, CambridgeGoogle Scholar
  2. Bohm P (1976) Social efficiency: a concise introduction to welfare economics. MacMillan, New YorkGoogle Scholar
  3. Clarke Edward H (2000) Demand revelation and the provision of public goods. Excel Press,, Inc, Lincoln, NEGoogle Scholar
  4. Coase R (1960) The problem of social cost. J Law Econ 3: 1–31. doi: 10.1086/466560 CrossRefGoogle Scholar
  5. Davis OA, Whinston AB (1962) Externalities, welfare, and the theory of games. J Polit Econ 70(3): 241–262. doi: 10.1086/258637 CrossRefGoogle Scholar
  6. Dasgupta S, Huq M, Wheeler D, Zhang C (1996) Water pollution abatement by Chinese industry: cost estimates and policy implications, Draft paper, May 1996Google Scholar
  7. Davis OA., Whinston AB (1965) Some notes on equating private and social cost. South Econ J 32: 113–125CrossRefGoogle Scholar
  8. Davis OA, Whinston AB (1966) On externalities, information, and the government-assisted invisible hand. Economica 63(131): 303–318. doi: 10.2307/2552406 CrossRefGoogle Scholar
  9. Findeisen W, Bailey FN, Brdys M, Malinowski K, Tatjewski P, Wozniak A (1980) Control and coordination in hierarchical systems. Wiley, ChichesterGoogle Scholar
  10. Hurwicz L (1972) Organizational structures for joint decision making: a designer’s point of view. In: Tuite M, Chisholm R, Radnor M (eds) Interorganizational decision making. Aldine Publishing Co., ChicagoGoogle Scholar
  11. Hurwicz L (1973) The design of mechanisms for resource allocation. Am Econ Rev 63: 1–30Google Scholar
  12. Hurwicz L (1980) On information decentralization and efficiency in resource allocation mechanisms. In: Reiter S (eds) Studies in mathematical economics. Wiley, New YorkGoogle Scholar
  13. Hurwicz L (1994) Economic design, adjustment processes, mechanisms, and institutions. Econ Des 1: 1–14Google Scholar
  14. Hurwicz L (1999) Revisiting externalities. J Public Econ Theory 1(2): 225–245. doi: 10.1111/1097-3923.00010 CrossRefGoogle Scholar
  15. Hurwicz L, Marshak T (2000) Comparing finite mechanisms with an application to exchange economies. Presented at NBER decentralization conference, St. Louis, AprilGoogle Scholar
  16. Hurwicz L, Reiter S (2006) Designing economic mechanisms. Cambridge University Press, CambridgeGoogle Scholar
  17. Lee KH, Isenhart TM, Schultz RC, Mickelson SK (1999) Nutrient and sediment removal by switchgrass and cool-season grass filter strips in Central Iowa, USA. Agrofor Syst 44: 121–132. doi: 10.1023/A:1006201302242 CrossRefGoogle Scholar
  18. Dinar, A, Loehman, E (eds)Loehman ET (1995) Water quantity/quality management and conflict resolution. Greenwood Press, New YorkGoogle Scholar
  19. Loehman ET (1998) Cooperation in pollution reduction: design of a policy instrument, Chap. 11. In: Loehman E, Marc Kilgour D (eds) Designing institutions for environmental and resource management. Elgar Publ., Northampton, MA, pp 180–198Google Scholar
  20. Loehman ET, Dinar A (1994) Cooperative solutions to externality problems: the case of irrigation water. J Environ Econ Manag 26: 235–256. doi: 10.1006/jeem.1994.1015 CrossRefGoogle Scholar
  21. Loehman ET, Whinston AB (1971) A new theory of pricing and decision-making for public investments. Bell J Econ Manag Sci 2(2): 606–625. doi: 10.2307/3003008 CrossRefGoogle Scholar
  22. Loehman ET, Whinston AB (1974) Axiomatic approach to cost allocation for public investment. Public Financ Q 2(2): 236–250. doi: 10.1177/109114217400200205 CrossRefGoogle Scholar
  23. Loehman ET, Whinston AB (1976) A generalized cost allocation scheme. In: Lin S (eds) Theory and measurement of economic externalities. Academic Press, New York, pp 87–101Google Scholar
  24. Loehman ET, Pingry D, Whinston AB (1974) Cost allocation for a regional pollution treatment system. In: Connor JR, Loehman ET (eds) Economics and decision-making for environmental quality. University of Florida Press, Gainesville, pp 223–250Google Scholar
  25. Loehman ET, Orlando J, Tschirhart J, Whinston AB (1979) Cost allocation for a regional wastewater treatment system. Water Resour Res J 15(2): 193–202. doi: 10.1029/WR015i002p00193 CrossRefGoogle Scholar
  26. Loehman ET, Kiser R, Rassenti SJ (2001) Cost share adjustment processes for local public goods: exploring alternative institutions. Manuscript, Department of Agricultural Economy, Purdue UniversityGoogle Scholar
  27. Luce RD, Raiffa H (1957) Games and decisions. Wiley, New YorkGoogle Scholar
  28. Mas-Colell A, Silvestre J (1989) Cost share equilibria: a Lindahlian approach. J Econ Theory 47: 239–256. doi: 10.1016/0022-0531(89)90019-7 CrossRefGoogle Scholar
  29. Mas-Colell A, Silvestre J (1991) A Note on cost-share equilibrium and owner-consumers. J Econ Theory 54: 204–214. doi: 10.1016/0022-0531(91)90114-J CrossRefGoogle Scholar
  30. Natural Resources Conservation Service (1999) The national conservation buffer initiative: a qualitative evaluation, Prepared by Applied Research Systems, Inc. U.S. Department of Agriculture, Washington, DCGoogle Scholar
  31. OECD (1992) The polluter-pays principle: OECD analyses and recommendations, Environment Directorate, OCDC/GD(92)81Google Scholar
  32. OECD (2001) Environmentally related taxes in OECD countries, issues and strategies. http://www1.oecd/publications/e-book/9791191e.pdf
  33. Reiter S (1995) Coordination and the structure of firms. Manuscript, Northwestern UniversityGoogle Scholar
  34. Samuelson P (1954) The pure theory of public expenditure. Rev Econ Stat 36: 386–389Google Scholar
  35. Smith VL (1980) Experiments with a decentralized mechanism for public good decisions. Am Econ Rev 70: 584–599Google Scholar
  36. Smith VL (1989) Theory, experiment, and economics. J Econ Perspect 3: 151–169Google Scholar
  37. Stavins RN (2000) Economics of the environment. W.W. Norton, New YorkGoogle Scholar
  38. Takayama A (1985) Mathematical economics. Cambridge Press, CambridgeGoogle Scholar
  39. Tauer, L.W, Determining the Optimal Amount of Nitrogen to Apply to Corn using the Box-Cox Functional Form, Working Paper 2000-06, Department of Agricultural, Resource, and Managerial Economics, Cornell University, April 2000Google Scholar
  40. Weber S, Wiesmeth H (1991) The equivalence of core and cost share equilibria in an economy with a public good. J Econ Theory 54: 180–197. doi: 10.1016/0022-0531(91)90112-H CrossRefGoogle Scholar
  41. Wellisz S (1964) On external diseconomies and the government-assisted invisible hand. Economica (November):3346–3362Google Scholar

Copyright information

© Springer Science+Business Media B.V. 2009

Authors and Affiliations

  1. 1.Purdue UniversityWest LafayetteUSA

Personalised recommendations