Conference Agenda

Traditional Pigouvian and Coasean approaches to regulating externalities falter under uncertainty and disagreement, as they require precise knowledge of externality costs or frictionless bargaining. We develop a system of outcome-contingent "Coasean transfers" that leverage uncertainty and agents' heterogeneous information to achieve efficient outcomes without requiring disclosure of private information. These transfers operate through payments consisting of a quantity component (the gap between an agent's action and the market average) and a price component (tied to publicly observable aggregate outcomes). We prove a market-equivalence result: the optimal transfer pricing schedule corresponds to the equilibrium price in a hypothetical Coasean market for the externality. The equilibrium allocation under Coasean transfers is team efficient and strictly dominates traditional tools like Pigouvian taxes. These transfers are budget-balanced and informationally light, requiring only normative objectives, not private information or signal structures. They incentivize information acquisition, remain robust when agents distrust each other's information, and are politically viable, receiving ex-ante unanimous support.

We show that even when firms' sustainability claims are costless and non-verifiable, they can still retain (partial) credibility. Non-babbling equilibria arise in a standard cheap-talk model when investors face uncertainty about both cash flows and the sustainability attribute. In such equilibria, sustainability claims are endogenously negatively correlated with cash flows and positively correlated with the sustainability attribute, even if the two are ex ante independent. The negative cash-flow implication of a claim serves as an endogenous cost, enabling credible communication. We characterize how disclosure behavior and credibility vary with the level of cash-flow uncertainty and provide novel empirical evidence supporting this mechanism. Our results shed new light on firms' communication of sustainability information in the absence of regulatory interventions.