Optimal environmental regulation of politically influential sectors with asymmetric information

Research output: Contribution to journalArticlepeer-review

6 Scopus citations


Politically motivated subsidies can have undesired environmental consequences. Asymmetric information regarding firm productivity constrains the government's ability both to redistribute income and control emissions. Taking political and information constraints as given, this article characterizes a social-welfare maximizing policy. The optimal policy uses a single instrument to achieve both goals, making income-support subsidies contingent upon pollution reduction. Price variation allows the government to design contracts with countervailing incentives, potentially eliminating some firms' information advantage.

Original languageEnglish (US)
Pages (from-to)72-89
Number of pages18
JournalJournal of Environmental Economics and Management
Issue number1
StatePublished - Jan 1 2008
Externally publishedYes


  • Countervailing incentives
  • Income support
  • Mechanism design
  • Regulation

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law


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