Optimal environmental regulation under asymmetric information

Daniel F. Spulber*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

78 Scopus citations


A market model of environmental regulation with interdependent production and pollution abatement costs and heterogeneous firms is developed. Firms have private information about costs which have a quadratic form. Firms pursue Bayes-Nash strategies in communication with the regulator. The full information optimum cannot be attained unless gains from trade in the product market net of external damages exceed the information rents earned by firms. Aggregate output and externality levels are lower at the regulated equilibrium than at the full information social optimum.

Original languageEnglish (US)
Pages (from-to)163-181
Number of pages19
JournalJournal of Public Economics
Issue number2
StatePublished - Mar 1988

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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