Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
Diffuse pollution from agriculture and extractive industries reduces air and water quality and contributes to climate change. We consider a setting in which a regulator must incentivize unobserved abatement given that firms have limited liability, and when they can enter and exit. We demonstrate that a simple dynamic incentive scheme can solve this difficult regulatory problem: firms pay a constant tax and receive rebates following periods of low pollution. We apply the model to water pollution from a fracking operation and simulate the contract to explore the volatility of the firm's payments and the costs of limited liability.