Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/101995
Authors: 
Voß, Achim
Lingens, Jörg
Year of Publication: 
2014
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 66.2014
Abstract: 
Many environmental-policy problems are characterized by complexity and uncertainty. Government’s choice concerning these policies commonly relies on information provided by a bureaucracy. Environmental bureaucrats often have a political motivation of their own, so they might be tempted to misreport environmental effects in order to influence policy. This transforms a problem of uncertainty into one of asymmetric information. We analyze the ensuing principal-agent relationship and derive the government’s optimal contract, which conditions policy and rewards on reported environmental effects. We find that agents who are more environmentalist than the government are rewarded for admitting that the environmental impact is low (and vice versa). With higher uncertainty, the bureaucrat has a stronger influence on policy. For some values of the environmental impact, the bureau is permitted to set its own preferred policy (optimal delegation).
Subjects: 
Environmental Policy
Political Economy
Delegation
Bureaucracy
Regulatory Agency
Mechanism Design
Type-dependent Participation Constraint
Pure State Constraints in Optimal Control
JEL: 
D73
D82
C61
Q52
Q58
Document Type: 
Working Paper

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