River pollution abatement: Decentralized solutions and smart contracts
Abstract: In river systems, costly upstream pollution abatement creates downstream welfare gains. Absent adequate agreement on how to share the gains, upstream regions lack incentives to reduce pollution levels. We develop a model that makes explicit the impact of water quality on production benefits and suggest a solution for sharing the gains of optimal pollution abatement, namely the Shapley value of an underlying convex cooperative game. We provide a decentralized implementation through a smart contract to automate negotiations. It ensures a socially optimal agreement supported by fair compensations to regions that turn to cleaner production from those that pollute.