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What’s the Damage? Environmental Regulation with Policy-Motivated Bureaucrats

Author

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  • Voß, Achim
  • Lingens, Jörg

Abstract

Many environmental-policy problems are characterized by complexity and uncertainty. Government’s choice concerning these policies commonly relies on information provided by a bureaucracy. Environmental bureaucrats often have a political motivation of their own, so they might be tempted to misreport environmental effects in order to influence policy. This transforms a problem of uncertainty into one of asymmetric information. We analyze the ensuing principal-agent relationship and derive the government’s optimal contract, which conditions policy and rewards on reported environmental effects. We find that agents who are more environmentalist than the government are rewarded for admitting that the environmental impact is low (and vice versa). With higher uncertainty, the bureaucrat has a stronger influence on policy. For some values of the environmental impact, the bureau is permitted to set its own preferred policy (optimal delegation).

Suggested Citation

  • Voß, Achim & Lingens, Jörg, "undated". "What’s the Damage? Environmental Regulation with Policy-Motivated Bureaucrats," Climate Change and Sustainable Development 179001, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemcl:179001
    DOI: 10.22004/ag.econ.179001
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    Cited by:

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    2. Wang, Dan & Wang, Jiancheng & Hao, Peng & Ren, Qiyu, 2024. "A powerful local government's optimal discretion in simple menu contract of monopoly regulation," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 280-300.
    3. Yang, Xiaohui & Yan, Ji & Tian, Kun & Yu, Zihao & Yu Li, Rebecca & Xia, Senmao, 2021. "Centralization or decentralization? the impact of different distributions of authority on China's environmental regulation," Technological Forecasting and Social Change, Elsevier, vol. 173(C).

    More about this item

    Keywords

    ;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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