Optimal Compensation Mechanism Design of Non point Source Pollution

Abstract:

A management model is first established under complete information, and then a contract is made to expose the farmers’ production type under incomplete information by incentive theory. An incentive model with government’s auditing is presented, which improves the compensation model. A discussion is held on the model’s result, as a result,the compensation mechanism of non point source pollution is obtained. The new mechanism can realize the management goal by farmers’ self declaration. At last, a numerical example validates the approach.

Key words:nonpoint source pollution; mechanism design; individual rationality; incentive compatibility; compensation