Delegating Pollution Permits
Scandinavian Journal of Economics, forthcoming
35 Pages Posted: 4 May 2020 Last revised: 10 Sep 2021
Date Written: September 10, 2021
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, in general, more
delegation the higher is the probability of the firm being low-cost. This is not in line with the
so-called uncertainty principle, which states that there is more delegation the more uncertainty
the government faces.
Keywords: Bureauracy; Delegation; Pollution standards; Permits
JEL Classification: D82, H23, L51, Q58
Suggested Citation: Suggested Citation