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Abstract
Regulation of nonpoint source pollution often relies in one way or
another on policy instruments based on ambient indicators. For well-known
reasons, enforcement of ambient-based policies is, at best, limited.
If no individual choices or actions are observed, than ambient-based
regulation might be the only feasible approach. Often, some
relevant individual indicators, such as output or certain inputs, are observable.
For such cases, we offer a regulation mechanism that does
away with ambient indicators. The mechanism implements the optimal
output-abatement-emission allocation and gives rise to the full information
outcome when the social cost of transfers is nil. Special attention is given to the regulation of (unobserved) abatement.