IDEAS home Printed from https://ideas.repec.org/p/ete/etewps/ete0312.html
   My bibliography  Save this paper

Environmental policy as a multi-task principal-agent problem

Author

Listed:
  • 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.

Suggested Citation

  • Laurent Franckx & Alessio D'Amato, 2003. "Environmental policy as a multi-task principal-agent problem," Energy, Transport and Environment Working Papers Series ete0312, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    • Handle: RePEc:ete:etewps:ete0312
    as

    Download full text from publisher

    File URL: http://feb.kuleuven.be/drc/Economics/misc/ete_workingpapers/ete-wp-2003-12.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-1190, September.
    4. HOLMSTROM, Bengt, 1979. "Moral hazard and observability," LIDAM Reprints CORE 379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Martimort, David, 1996. "The multiprincipal nature of government," European Economic Review, Elsevier, vol. 40(3-5), pages 673-685, April.
    6. Jean-Jacques Laffont & David Martimort, 1999. "Separation of Regulators Against Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 232-262, Summer.
    7. Sinclair-Desgagne, Bernard, 1999. "How to Restore Higher-Powered Incentives in Multitask Agencies," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(2), pages 418-433, July.
    8. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    9. Bernard Sinclair-Desgagné, 2001. "Incentives in Common Agency," Cahiers de recherche 01-08, HEC Montréal, Institut d'économie appliquée.
    10. Martimort, David, 1999. "Renegotiation Design with Multiple Regulators," Journal of Economic Theory, Elsevier, vol. 88(2), pages 261-293, October.
    11. Sinclair-Desgagne, Bernard, 1994. "The First-Order Approach to Multi-signal Principal-Agent Problems," Econometrica, Econometric Society, vol. 62(2), pages 459-466, March.
    12. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marie-Cécile Fagart & Bernard Sinclair-Desgagné, 2002. "Auditing Policies and Information Systems in Principal-agent Analysis," Cahiers de recherche 02-02, HEC Montréal, Institut d'économie appliquée.
    2. Goldsmith, Peter D. & Basak, Rishi, 1999. "Environmental Performance Indicators And Executive-Employee Risk Sharing," 1999 Annual meeting, August 8-11, Nashville, TN 21546, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. de, Vries Frans & Franckx, Laurent, 2012. "A Note on Organizational Design and the Optimal Allocation of Environmental Liability," Stirling Economics Discussion Papers 2012-09, University of Stirling, Division of Economics.
    4. Hooper, Louise, 2008. "Paying for performance: Uncertainty, asymmetric information and the payment model," Research in Transportation Economics, Elsevier, vol. 22(1), pages 157-163, January.
    5. Bernard Sinclair-Desgagné & Marie-Cécile Fagart, 2004. "Auditing policies and information," Econometric Society 2004 North American Winter Meetings 86, Econometric Society.
    6. Laurent Franckx & Frans P. Vries & Ben White, 2022. "A note on organizational structure and environmental liability," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 24(2), pages 173-193, April.
    7. Madhav V. Rajan & Stefan Reichelstein, 2006. "Subjective Performance Indicators and Discretionary Bonus Pools," Journal of Accounting Research, Wiley Blackwell, vol. 44(3), pages 585-618, June.
    8. Alex Edmans & Xavier Gabaix, 2016. "Executive Compensation: A Modern Primer," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1232-1287, December.
    9. Bartsch, Elga, 1996. "Enforcement of environmental liability in the case of uncertain causality and asymmetric information," Kiel Working Papers 755, Kiel Institute for the World Economy (IfW Kiel).
    10. Baomin Dong & Guixia Guo & Frank Yong Wang, 2013. "Dynamic Moral Hazard and Executive Stock Options," Pacific Economic Review, Wiley Blackwell, vol. 18(2), pages 259-279, May.
    11. Laurent Franckx & F.P. de Vries, 2004. "Environmental Liability and Organizational Structure," Energy, Transport and Environment Working Papers Series ete0401, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    12. Bernard Sinclair-Desgagné, 2004. "Corporate Strategies For Managing Environmental Risk (The International Library Of Environmental Economics And Policy – Volume xx)," CIRANO Working Papers 2004s-43, CIRANO.
    13. Marcelo Bianconi, 2004. "Aggregate and Idiosyncratic Risk and the Behavior of Individual Preferences under Moral Hazard," Discussion Papers Series, Department of Economics, Tufts University 0410, Department of Economics, Tufts University.
    14. McCausland, David & Pouliakas, Konstantinos & Theodossiou, Ioannis, 2005. "Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction," MPRA Paper 14243, University Library of Munich, Germany.
    15. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
    16. Elisabetta Iossa & David Martimort, 2012. "Risk allocation and the costs and benefits of public--private partnerships," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 442-474, September.
    17. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    18. Clausen, Andrew, 2013. "Moral Hazard with Counterfeit Signals," SIRE Discussion Papers 2013-13, Scottish Institute for Research in Economics (SIRE).
    19. Santos, Joao C., 1997. "Debt and equity as optimal contracts," Journal of Corporate Finance, Elsevier, vol. 3(4), pages 355-366, December.
    20. Kerstin Puschke, 2009. "Task assignment and organizational form," Journal of Economics, Springer, vol. 96(2), pages 149-168, March.

    More about this item

    Keywords

    environmental regulation; multi-tasking;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ete:etewps:ete0312. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: library EBIB (email available below). General contact details of provider: https://edirc.repec.org/data/etkulbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.