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On Environmental Policy and Permitting

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  • PHILIPPE BONTEMS
  • JEAN‐MARC BOURGEON

Abstract

The literature on environmental policy under adverse selection usually assumes that firms' profit vary monotonically with a private information parameter. However, it is easy to demonstrate using standard production setups that regularity is not the rule. We show that policy requirements are very sensitive to this assumption. In particular, the optimal instrument resembles more an “adaptable” pollution standard than the economic instrument of an environmental tax. We also show that permitting, which results in some firms overinvesting in pollution‐control equipment, does not serve the objective of improving the environment but rather allows the agency to increase the proceeds of the policy.

Suggested Citation

  • Philippe Bontems & Jean‐Marc Bourgeon, 2007. "On Environmental Policy and Permitting," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(5), pages 771-792, October.
    • Handle: RePEc:bla:jpbect:v:9:y:2007:i:5:p:771-792
    DOI: 10.1111/j.1467-9779.2007.00330.x
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    References listed on IDEAS

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    1. Tracy R. Lewis, 1996. "Protecting the Environment When Costs and Benefits Are Privately Known," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 819-847, Winter.
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    Cited by:

    1. Walter, Jason M., 2020. "Comparing the effectiveness of market-based and choice-based environmental policy," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 173-191.

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