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

53 Pages Posted: 16 Jul 2014

See all articles by Achim Voss

Achim Voss

University of Hamburg - Department of Economics

Jörg Lingens

University of Münster

Date Written: July 15, 2014

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).

Keywords: Environmental Policy, Political Economy, Delegation, Bureaucracy, Regulatory Agency, Mechanism Design, Type-dependent Participation Constraint, Pure State Constraints in Optimal Control

JEL Classification: D73, D82, C61, Q52, Q58

Suggested Citation

Voß, Achim and Lingens, Jörg, What's the Damage? Environmental Regulation with Policy-Motivated Bureaucrats (July 15, 2014). FEEM Working Paper No. 066.2014. Available at SSRN: https://ssrn.com/abstract=2466463 or http://dx.doi.org/10.2139/ssrn.2466463

Achim Voß (Contact Author)

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

HOME PAGE: http://www.wiso.uni-hamburg.de/professuren/mikrooekonomische-theorie-und-experimente/team/wissenscha

Jörg Lingens

University of Münster ( email )

Universitätsstr. 14-16
48143 Munster
Germany

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