This paper examines the optimality of regulatory delegation when neither output levels nor effort levels are contractible. The key trade-off is that while the federal government is able to internalize externalities, the state governments have preferences that are better aligned with local...

This paper examines the optimality of environmental regulatory delegation when neither output levels nor effort levels are contractible. The key trade-off is that while the federal government is able to internalize externalities, the state governments have preferences that are better aligned...