Exogenous Targeting Instruments with Heterogeneous Agents

Abstract

This paper investigates the ability of ambient pollution instruments to induce a group of heterogeneous agents to choose a target outcome. Six controlled laboratory sessions were conducted with heterogeneous agents facing ambient pollution instruments with lump sum or proportional fines and bonuses. Sessions are compared with a study of these exogenous targeting instruments and homogenous agents using complete information and certainty [25]. The data show that contracts can indeed be developed that induce heterogeneous groups to choose the target outcome; however, substantial inefficiency and inequality were observed.