With a nonlocalized pollution externality, different groups bear the costs and benefits of abatement. In the case of acid rain these groups are, respectively, consumers in the Midwest and pollutees in the Northeast. These groups have conflicting interests that are represented respectively by a...

Regulation has economic and political dimensions, both of which I endogenize in this hierarchical model in which a legislature chooses by majority rule the mandate of an agency that faithfully regulates a firm with private information about its costs. Sufficient conditions are given for an...

This article characterizes the optimal procurement contract for a monopsonistic purchaser who contracts with a risk-averse supplier with private information about his costs and who contributes an unobservable effort. The costs incurred by the supplier may be uncertain, and the purchaser has...

The article analyzes a model of a regulated firm that is better informed about its cost function than is the regulator. By auditing at a cost, however, the regulator is assumed to be able to observe the realized cost of the firm. If the regulator "finds" that the firm had misrepresented its...