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Abstract

Complexity of environmental programs is most apparent with information asymmetries, making the design of efficient mechanisms particularly challenging. As developed theoretically in this paper, a new regulatory capitalism paradigm mating voluntary agreements with environmental education can produce outcomes at least as efficient as voluntary agreements alone. Such a design exploits a key difference between voluntary agreements versus educational programs in terms of their impact on agents' incentive compatibilities. Specifically, in a principal-agent model, voluntary agreements are associated with an incentive-compatibility constraint, whereas educational programs are not. The efficient bundle will likely consist of a set of education programs and voluntary agreements. With the new order of regulatory capitalism, it is time to concentrate on removing barriers yielding inefficient mono-mechanism design and start constructing multidimensional incentives to efficiently allocate effort toward environmental and economic goals.

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