Delegating Pollution Permits
20 Pages Posted: 4 May 2020
Date Written: April 7, 2020
We discuss the decision to delegate the regulation of pollution through sales of permits to a biased expert in a situation where the polluting firm has private information about its technology. We consider, in particular, constrained delegation where the government puts restrictions on the amount of pollution that the expert can sell permits for. We find that there is more delegation the higher is the probability of the firm being low-cost. This is not in line with the so-called uncertainty principle, implying that the delegation of a regulatory task works differently from that of other tasks considered in the delegation literature.
Keywords: Bureauracy; Delegation; Pollution standards; Permits
JEL Classification: D82, H23, L51, Q58
Suggested Citation: Suggested Citation