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Environmental policy as a multi-task principal-agent problem

Author

Listed:
  • Laurent Franckx

    (Royal Military Academy)

  • Alessio D'Amato

    (University of Rome "Tor Vergata")

Abstract

We use a multi-task principal-agent model with moral hazard to study environmental regulation of a private agent by an EPA that can also allocate its budget to an alternative project with environmental benefits. In a first possible optimum, the EPA imposes a flat fine that exhausts the agent's participation constraint. In the second, the EPA provides the harshest possible punishment for a "poor" observed environmental performance and the highest possible reward for a "good" observed environmental performance. Increases in the available budget and in the maximally allowed penalty have then an ambiguous e_ect on total environmental quality.

Suggested Citation

  • Laurent Franckx & Alessio D'Amato, 2003. "Environmental policy as a multi-task principal-agent problem," Energy, Transport and Environment Working Papers Series ete0312, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    • Handle: RePEc:ete:etewps:ete0312
    as

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    File URL: http://feb.kuleuven.be/drc/Economics/misc/ete_workingpapers/ete-wp-2003-12.pdf
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    References listed on IDEAS

    as
    1. Sinclair-Desgagne, Bernard & Gabel, H. Landis, 1997. "Environmental Auditing in Management Systems and Public Policy," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 331-346, July.
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    5. Martimort, David, 1996. "The multiprincipal nature of government," European Economic Review, Elsevier, vol. 40(3-5), pages 673-685, April.
    6. Jean-Jacques Laffont & David Martimort, 1999. "Separation of Regulators Against Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 232-262, Summer.
    7. Sinclair-Desgagne, Bernard, 1999. "How to Restore Higher-Powered Incentives in Multitask Agencies," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(2), pages 418-433, July.
    8. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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    More about this item

    Keywords

    environmental regulation; multi-tasking;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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