Cesare Dosi

Nonpoint source pollution regulation : issues and analysis

Foreword D. Siniscalco. Preface C. Dosi, T. Tomasi. 1. Issues in the Design of Incentive Schemes for Nonpoint Source Pollution Control T. Tomasi, K. Segerson, J. Braden. 2. Regulation of Pollution with Asymmetric Information J.-J. Laffont. 3. Controlling Environmental Externalities: Observability and Optimal Policy Rules A. Xepapadeas. 4. Nonpoint Tournaments R. Govindasamy, J.A. Herriges, J.F. Shogren. 5. Nonpoint Source Externalities and Polluters Site Quality Standards under Incomplete Information C. Dosi, M. Moretto. 6. Incentives for Nonpoint Pollution Control J.S. Shortle, D.G. Abler. 7. Water Pollution Regulation in a Spatial Model T. Tomasi, A. Weise.

Pollution Accumulation and Firm Incentives to Accelerate Technological Change Under Uncertain Private Benefits

The paper explores the relationships between the design of public incentives and the policy-makers desired timing of abandonment of a polluting technology, when this requires an irreversible private investment and the firm faces uncertain appropriable benefits from the technological change. Two regulatory approaches are examined. Firstly, we consider the quite common one of lowering the private investment cost, through a subsidy, in order to bridge the gap between the private and the policy-makers desired timing of environmental innovation. Secondly, we consider a policy scenario where the regulator, instead of simply lowering the investments rental price, also stimulates abandonment of the polluting technology by reducing – through appropriate announcements – the uncertainty surrounding the technological switchs private profitability. We then compare the two approaches and show the latters benefits, in terms of the policys effectiveness and/or budgetary savings.

Concession Bidding Rules and Investment Time Flexibility

We study the competition to operate an infrastructure service by developing a model where firms report a two-dimensional sealed bid: the price to consumers and the concession fee paid to the government. Two alternative bidding rules are considered in this paper. One rule consists of awarding the exclusive right of exercise to the firm that reports the lowest price. The other consists of granting the franchise to the bidder offering the highest fee. We compare the outcome of these rules with reference to two alternative concession arrangements. The former imposes the obligation to immediately undertake the investment required to roll-out the service. The latter allows the winning bidder to optimally decide the investment time. The focus is on the effect of bidding rules and managerial flexibility on expected social welfare. We find that the two bidding rules provide the same outcome only when the contract restricts the autonomy of the franchisee, and we identify the conditions under which time flexibility can provide a higher social value.

Nonpoint-Source Pollution Control, Information Asymmetry, and the Choice of Time Profile for Environmental Fees

Water quality management specialists have for a long time emphasized the practical difficulties of intercepting and neutralizing pollutants running off nonpoint sources (NPS) through conventional add-on devices, and the consequent need to prevent pollutant generation as far as possible. However, the application of an ex ante pollution control approach through effective regulatory schemes may involve a number of problems that arise from the difficulty, and sometimes the technical impossibility, of monitoring NPS emissions at source. This may be due to the mode of conveyance of pollutant flows, the intermittent nature of discharges or the fact that pollutants originate over a widespread area (Vigon, 1985). The relative role played by each of these factors in preventing the monitoring of emissions on a continuous basis may vary according to the specific pollutant at hand.

Water Scarcity: Institutional Change, Water Markets, and Privatization

A number of countries face water shortages because they need to make some basic changes in their water management. Policy options do exist. Most of them share the objective of treating water and water services as an economic good, by regulating private inefficient appropriation of open-access resources, and by making the demand for water less independent of users’ willingness to pay for it. The aim of this paper is to provide an overview of these policy options by illustrating their rationale and possible caveats. We begin by stressing the importance of improving countries’ social capital (i.e., institutional arrangements and management rules for allocating water between competitive uses). We then concentrate on some economic approaches to improving water management, i.e., the establishment of water markets and the privatization of water utilities, by focussing on experiences and on-going developments in the United States and the European Union.

Nonpoint Source Externalities and Polluter’s Site Quality Standards Under Incomplete Information

There is basic consensus in the technical literature on the factors that distinguish nonpoint source (NPS) pollution (NPSP) from traditional point-source problems. These features may be summarised as follows.

Procurement with Unenforceable Contract Time and the Law of Liquidated Damages

Time overruns are common in public works and are not confined to inherently complex tasks. One explanation advanced in this paper is that bidders can undergo unpredictable changes in production costs which generate an option value of waiting. By exploiting the real-option approach, we examine how the inability to force sellers to meet the contract time influences their bidding behaviour, and how this can ultimately affect the parties’ expected payoffs. Further, we examine the outcome of the bidding process when legal rules prevent the promisee from contracting for damage measures which would grant more than her lost expectation. We show that when the pre-agreed compensatory payments prove insufficient to discourage delayed orders, setting a liquidated damages clause would not lead to a Pareto superior outcome with respect to the no-damage-for delay condition. While such a clause would increase the seller’s expected payoff, the buyer’s expected payoff is lower than when the contract does not provide for any compensation for late-delivery.

Cost Uncertainty and Time Overruns in Public Procurement: a Scoring Auction for a Contract with Delay Penalties

Drawing on the real-options theory we analyse bidding behaviour in a sealed-bid-first-score procurement auction where suppliers, facing variable production costs, must simultaneously report the contract price and the cost level at which they intend to perform the project. We show that this award mechanism is potentially able to maximize total welfare. Next we look at the time incentives required to ensure compliance with the promised optimal trigger value. We show that ex-post efficiency may call for delay penalties higher than the anticipated harm caused by time overruns, in so doing questioning the efficiency rationale of existing liquidated damages rules.

Controlling Groundwater Pollution from Agricultural Non-point Sources: an Overview of Policy Instruments

Agricultural incidental impacts upon groundwater quality can be either traced back to the use of potentially harmful inputs, such as fertilizers and plant-protection products, or to other farming practices (irrigation techniques and groundwater abstractions). Aquifer enrichment takes place through pollutants accumulating on farmland (e.g. nitrogen surpluses) or coming from outside the farm-gates (saltwater in coastal areas) (Giacomelli et al.., Chapter 3, this volume).

Multidimensional auctions for long-term procurement contracts with early-exit options: The case of conservation contracts

Conservation contracts, aimed at encouraging preservation and maintenance of natural areas, generally involve long-term obligations. Yet, contractors can find it profitable to breach the agreement when the opportunity cost of keeping their land idle for environmental purposes increases, and contracts do not provide for adequate early termination penalties. In this paper, we study how exit options can affect bidding behavior and the buyer’s and the seller’s expected payoffs in multidimensional procurement auctions. First, we show that bidders’ payoff is lower when competing for contracts with unenforceable contract terms. Second, we show that neglecting the risk of opportunistic behavior by sellers can lead to contract awards that do not maximize the buyer’s potential payoff. Third, we make suggestions about how to mitigate potential misallocations by pointing out the role of eligibility rules and competition among bidders.