Template-Type: ReDIF-Paper 1.0 Author-Name: Ratul Lahkar Author-Name-First: Ratul Author-Name-Last: Lahkar Author-Email: ratul.lahkar@ashoka.edu.in Author-Workplace-Name: Department of Economics, Ashoka University Author-Name: Vinay Ramani Author-Name-First: Vinay Author-Name-Last: Ramani Author-Email: v.ramani2710@gmail.com Author-Workplace-Name: Indian Institute of Management, Visakhapatnam Title: An Evolutionary Approach to Pollution Control in Competitive Markets Abstract: We consider a large population of firms in a market environment. The firms are divided into a finite set of types, with each type being characterized by a distinct private cost function. Moreover, the firms generate an external cost like pollution in the production process. As a result, the Nash equilibrium outcome is not socially optimal. We propose an evolutionary implementation mechanism to achieve the socially optimal outcome. In contrast to the classical Pigouvian pricing and the VCG mechanism, evolutionarily implementation does not require the planner to know or elicit any private information from firms. Hence, it is informationally parsimonious. By imposing a tax equal to the current external damage being imposed by a firm, the planner can guide the evolution of the society towards the social optimum. The imposition of the tax generates a potential game whose potential function is the social welfare function of the model. Evolutionary dynamics converge to the maximizer of this function thereby evolutionarily implementing the social welfare maximizer. length: 26 Creation-Date: 20211013 Revision-Date: Publication-Status: File-URL: https://dp.ashoka.edu.in/ash/wpaper/paper68_0.pdf File-Format: Application/pdf Number: 68 Keywords: Potential Games Keywords: Negative Externality Keywords: Pigouvian Tax Keywords: Evolutionary Implementation Keywords: Dominant Strategy Implementation Handle: RePEc:ash:wpaper:68