Delegating Pollution Permits

Scandinavian Journal of Economics, forthcoming

27 Pages Posted: 4 May 2020 Last revised: 12 Jul 2021

See all articles by Tapas Kundu

Tapas Kundu

Oslo Metropolitan University

Tore Nilssen

University of Oslo - Department of Economics

Date Written: July 11, 2021


Abstract 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 less uncertainty the government faces. We also find that delegation may imply a distortion in the low-cost firm's pollution level, which makes regulation through delegation different from other ways of regulation under asymmetric information.

Keywords: Bureauracy; Delegation; Pollution standards; Permits

JEL Classification: D82, H23, L51, Q58

Suggested Citation

Kundu, Tapas and Nilssen, Tore, Delegating Pollution Permits (July 11, 2021). Scandinavian Journal of Economics, forthcoming, Available at SSRN: or

Tapas Kundu

Oslo Metropolitan University ( email )

Pilestredet 35
Oslo, 0167


Tore Nilssen (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo

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