Environmental standard setting by a supra-regional authority: customisation or convergence?
The paper studies the fixing of environmental standards by a supra-regional (e.g. European) authority when regional authorities have private information about local conditions. Institutionally, the standard-setting body is not authorised to levy taxes on the regions. We show that the elicitation of private information may require weaker environmental standards (i.e. higher pollution allowances) than the first-best solution. In this case, the social cost of the informational rent left to the region, in the form of increased pollution, can be such that bunching is optimal (the standards are less closely customised to region-specific conditions). In the extreme, the informational cost can be such that it is optimal to disregard the regional characteristics and to require convergence. Copyright 2003, Oxford University Press.
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Volume (Year): 30 (2003)
Issue (Month): 4 (December)
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