Wheel of Misfortune: A Lottery/Auction Mechanism for Siting of Noxious Facilities

Abstract

A two‐stage process for siting a noxious facility is proposed in this paper. We assume that each community that is a potential host to a site considers that the proposed project is sufficiently safe and that the community could accept it if given sufficient compensation. The siting problem then revolves around questions of fairness and efficiency. To address the fairness issue we propose the use of a lottery to select a potential site. To promote efficient use of resources a bidding procedure is proposed in which other communities could “win the site” along with a compensation package after the initial location is determined. This procedure guarantees a winner, either through the lottery or through the bidding procedure. The paper discusses different types of compensation packages depending upon the nature of the siting problem and the different cost structures between communities.