New Research: A Market-Based Alternative to “Polluter Pays” – Powered by Smart Contracts

por | Jul 10, 2026 | Dutch CS, Publication

We’re proud to spotlight the latest publication from our partner Erik Ansink (Vrije Universiteit Amsterdam), co-authored with Jens Gudmundsson and Jens Leth Hougaard (both University of Copenhagen), just published in The Scandinavian Journal of Economics: “Shifting the reference point in environmental regulation: from polluter-pays to beneficiaries-compensate.”

The paper tackles a problem that sits at the heart of environmental policy: the “polluter-pays” principle is ethically appealing, but it depends on being able to detect and price emissions, something that is often prohibitively difficult in practice, from agricultural runoff to transboundary air pollution. When emissions can’t be reliably monitored, how can efficient abatement still be achieved?

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The core idea: beneficiaries-compensate (BC)

Instead of trying to price pollution, the authors flip the reference point. Rather than requiring polluters to pay for the harm they cause, their beneficiaries-compensate (BC) scheme asks the parties who benefit from someone else’s abatement to compensate them for it. Crucially, this shifts the burden of proof: instead of monitoring emissions, the system only needs to verify that abatement, a discrete, often physical action like a reforestation project or a water treatment upgrade, actually took place.

The authors show this isn’t just an intuitive fix. Using formal game-theoretic and axiomatic tools, they prove that:

  • BC is the only transfer scheme that induces efficient abatement as a dominant strategy for every party, guarantees no one loses money by participating, and keeps the system financially balanced (Theorem 1).
  • BC is also the unique scheme that satisfies a set of classical fairness principles, equal treatment of equals, invariance to how the group of parties is defined, and consistency when abatement generates multiple types of benefit (Theorem 2).

In other words, from two entirely different starting points, one about incentives, one about fairness, the same solution emerges.

From theory to practice: international agreements and smart contracts

The paper doesn’t stop at the theory. The authors show how BC transfers can be embedded directly into international environmental agreements as a way of decentralizing how a coalition of signatories shares the cost of joint abatement, without needing a central enforcer.

They then go a step further, sketching how blockchain-based smart contracts could implement BC transfers in the real world, using cryptographic commitments to handle simultaneous decision-making and automated transfers that resolve the classic “who pays first” trust problem between abaters and beneficiaries. It’s a compelling glimpse of decentralized environmental governance: verifiable abatement actions, feeding into transparent, self-executing compensation rules, with no central authority required.

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Why it matters

The broader message is a simple but powerful one: when monitoring and enforcement are scarce, place the incentives where verification is feasible. For hard-to-monitor environmental problems, diffuse pollution, transboundary agreements, carbon removal, moving from “polluter pays” to “beneficiaries compensate” isn’t a compromise. It can be a practical route to genuinely efficient outcomes.