What's the damage? Environmental regulation with policy-motivated bureaucrats

Achim Voß and Jörg Lingens

No 67, CAWM Discussion Papers from University of Münster, Münster Center for Economic Policy (MEP)

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 (search for similar items in EconPapers)
JEL-codes: C61 D73 D82 Q52 Q58 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cta, nep-ene, nep-env and nep-ger
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https://www.econstor.eu/bitstream/10419/95873/1/782419755.pdf (application/pdf)

Related works:
Journal Article: What's the damage? Environmental regulation with policy‐motivated bureaucrats (2018)
Working Paper: What’s the Damage? Environmental Regulation with Policy-Motivated Bureaucrats (2014)
Working Paper: What’s the Damage? Environmental Regulation with Policy-Motivated Bureaucrats (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cawmdp:67

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