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Environmental policy as a multi-task principal-agent problem

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Author Info

  • Laurent Franckx

    ()
    (Royal Military Academy)

  • Alessio D'Amato

    (University of Rome "Tor Vergata")

Abstract

We use a multi-task principal-agent model with moral hazard to study environmental regulation of a private agent by an EPA that can also allocate its budget to an alternative project with environmental benefits. In a first possible optimum, the EPA imposes a flat fine that exhausts the agent's participation constraint. In the second, the EPA provides the harshest possible punishment for a "poor" observed environmental performance and the highest possible reward for a "good" observed environmental performance. Increases in the available budget and in the maximally allowed penalty have then an ambiguous e_ect on total environmental quality.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment in its series Energy, Transport and Environment Working Papers Series with number ete0312.

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Length: 20 pages
Date of creation: Nov 2003
Date of revision:
Handle: RePEc:ete:etewps:ete0312

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Keywords: environmental regulation; multi-tasking;

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References

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  1. Gabel H. Landis & Sinclair-Desgagne Bernard, 1993. "Managerial Incentives and Environmental Compliance," Journal of Environmental Economics and Management, Elsevier, vol. 24(3), pages 229-240, May.
  2. Martimort, David, 1999. "Renegotiation Design with Multiple Regulators," Journal of Economic Theory, Elsevier, vol. 88(2), pages 261-293, October.
  3. Laffont, Jean-Jacques & Martimort, David, 1994. "Separation of Regulators against Collusive Behavior," IDEI Working Papers 44, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Sinclair-Desgagne, Bernard, 1994. "The First-Order Approach to Multi-signal Principal-Agent Problems," Econometrica, Econometric Society, vol. 62(2), pages 459-66, March.
  5. David Martimort, 1996. "The multiprincipal nature of government," Working Papers 153244, Institut National de la Recherche Agronomique, France.
  6. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  7. Sinclair-Desgagne, Bernard, 1999. "How to Restore Higher-Powered Incentives in Multitask Agencies," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(2), pages 418-33, July.
  8. Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-90, September.
  9. Sinclair-Desgagne, Bernard & Gabel, H. Landis, 1997. "Environmental Auditing in Management Systems and Public Policy," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 331-346, July.
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