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Institutional Design For Environmental Acts

Author

Listed:
  • Louise Guillouet

    (IFC - International Finance Corporation)

  • David Martimort

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique)

Abstract

Environmental decisions often involve irreversibility and uncertainty. We develop a dynamic model in which actions yield flow benefits but, once an unknown tipping point is crossed, the accumulated stock of past actions raises the risk of irreversible catastrophe. Because constitutions are incomplete contracts, contingent policies cannot be fully specified, and authority is delegated to decision-makers who observe the current stock but hold biased beliefs, decreasing welfare. Such delegation is thus costly. Imposing caps on early actions can limit discretion and improve welfare, providing foundations for the Precautionary Principle as a second-best institution.

Suggested Citation

  • Louise Guillouet & David Martimort, 2026. "Institutional Design For Environmental Acts," Working Papers hal-05488377, HAL.
    • Handle: RePEc:hal:wpaper:hal-05488377
    Note: View the original document on HAL open archive server: https://hal.science/hal-05488377v1
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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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