Nash-efficient siting of hazardous facilities

Richardson, J.

Socio-Economic Planning Sciences 26(3): 191-202


ISSN/ISBN: 0038-0121
Accession: 085859817

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Compensation has been proposed to resolve a particularly difficult problem in risk management and public choice—the siting of hazardous facilities. Within the framework of collective choice with compensation, we investigated alternative decision mechanisms for the siting problem. Our goal was to find a Pareto efficient, individually rational, incentive compatible mechanism, or show that none could exist. We present a new mechanism which implements Pareto efficiency and individual rationality in Nash equilibrium. It was found, however, that incentive compatibility cannot be simultaneously implemented. We investigated convergence of our multiperiod mechanism under alternative behavioral hypotheses using computer simulations. Cournot-Nash behavior does not converge; however, more sophisticated behavior converges to a Nash equilibrium.