||Little Green Lies : Optimal environmental regulation with partially verifiable information
16-162016-09 , GRIPS Policy Research Center
When the set of possible messages depends on the actual state of the world, optimal incentive schemes to control environmental problems may not always satisfy the revelation principle. As a result, in equilibrium some agents may send false messages, particularly when the information rents in the truth- telling scheme are high. I characterise optimal pollution regulation schemes and produce some numerical examples to show mechanisms which allow some dishonesty in equilibrium may frequently outperform truth-telling schemes.
JEL Classification Codes: D82, Q58, H23