Abstract
In river systems, costly upstream pollution abatement creates downstream welfare gains. Absent
adequate agreement on how to share the gains, upstream regions lack incentives to reduce pollution
levels. We develop a model that makes explicit the impact of water quality on production
benefits and suggest a solution for sharing the gains of optimal pollution abatement, namely the
Shapley value of an underlying convex cooperative game. We provide a decentralized implementation
through a smart contract to automate negotiations. It ensures a socially optimal agreement
supported by fair compensations to regions that turn to cleaner production from those that pollute.
adequate agreement on how to share the gains, upstream regions lack incentives to reduce pollution
levels. We develop a model that makes explicit the impact of water quality on production
benefits and suggest a solution for sharing the gains of optimal pollution abatement, namely the
Shapley value of an underlying convex cooperative game. We provide a decentralized implementation
through a smart contract to automate negotiations. It ensures a socially optimal agreement
supported by fair compensations to regions that turn to cleaner production from those that pollute.
| Original language | English |
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| Publisher | Department of Food and Resource Economics, University of Copenhagen |
| Number of pages | 26 |
| Publication status | Published - 2021 |
| Series | IFRO Working Paper |
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| Number | 2021/07 |