Shifting the reference point in environmental regulation: From polluter-pays to beneficiaries-compensate

In many environmental problems, emissions are hard to monitor and abatement costs are privately known. We study how efficient abatement nevertheless can be induced through market-like arrangements that condition transfers on verifiable abatement rather than on measured emissions. We characterize the transfer schemes that implement efficient abatement in unique dominant strategies and show that a single scheme, the beneficiaries-compensate transfer scheme, emerges under two distinct characterizations: one based on equilibrium properties and one grounded in classical fairness axioms. Under the beneficiaries-compensate transfer scheme, each agent compensates others according to the benefits received from their abatement. We illustrate its usefulness in two applications.