From Green Whiskers

Promoting Better Environmental Outcomes

Posted in: Environmental economics

By Henry Ergas
September 1, 2008

These information imperfections create scope for rent-seeking, which results in both an allocative inefficiency – in the sense that the policies pursued do not reflect underlying preferences – and in productive inefficiency, in that policy objectives are pursued at higher than efficient cost. While the conventional prescription for reducing vulnerability to rent-seeking is to insulate the policy process from interest group pressures, this conflicts both with effective accountability and with the need for policy to adjust to changes in preferences, information and choice sets. Further aggravating the difficulties is the inherent conflict between this need for policy adaptability on the one hand, and the contribution policy credibility and stability can make to the efficiency of policy on the other. These three elements of the institutional design dilemma – limited information, rent-seeking, and costly commitment – define a world where there are no solutions but only trade-offs. Click the link below to view the paper.

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