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Pressure groups and experts in environmental regulation

  • Porteiro, Nicolas

We study a problem of adverse selection in the context of environmental regulation, where the firm may suffer from a certain degree of ignorance about its own type. In a framework like the construction of a certain infrastructure project, the presence of ignorance about its impact on the environment, can play an important role in the determination of the regulatory policy. First, an optimal contract is constructed for any exogenous level of ignorance. Second, the presence of potentially informed third-parties is studied from the perspective of the regulator, which allows us to analyze the impact on the efficiency of the contract, of the presence of environmentalists and of experts. Then, we obtain some insights on how the problem differs when the degree of ignorance is a choice variable for the firm. We finally use our results to derive policy implications concerning the existing envoronmental regulation, and the potential role of interested parties as information providers.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 65 (2008)
Issue (Month): 1 (January)
Pages: 156-175

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Handle: RePEc:eee:jeborg:v:65:y:2008:i:1:p:156-175
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Batabyal, Amitrajeet A, 2000. "On the Design of International Environmental Agreements for Identical and Heterogeneous Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 560-83, July.
  2. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
  3. S Michelle Driedger & John Eyles, 2003. "Charting uncertainty in science-policy discourses: the construction of the chlorinated drinking-water issue and cancer," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 21(3), pages 429-444, June.
  4. repec:ner:ucllon:http://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
  5. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  6. Jean-Jacques LAFFONT & Jean TIROLE, 1990. "The Politics of Government Decision-Making : a Theory of Regulatory Capture," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9004, Université de Lausanne, Faculté des HEC, DEEP.
  7. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Strategic Information Gathering before a Contract Is Offered," Journal of Economic Theory, Elsevier, vol. 81(1), pages 163-200, July.
  8. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Paul R. Milgrom & John Roberts, 1985. "Relying on the Information of Interested Parties," Cowles Foundation Discussion Papers 749, Cowles Foundation for Research in Economics, Yale University.
  10. Lewis Tracy R. & Sappington David E. M., 1993. "Ignorance in Agency Problems," Journal of Economic Theory, Elsevier, vol. 61(1), pages 169-183, October.
  11. Cremer, Jacques & Khalil, Fahad, 1994. "Gathering information before the contract is offered: The case with two states of nature," European Economic Review, Elsevier, vol. 38(3-4), pages 675-682, April.
  12. 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.
  13. Anke Kessler, 1998. "The Value of Ignorance," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 339-354, Summer.
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