Rent creation and rent seeking in environmental policy

Rents and political motives are present in many aspects of public policy. This article considers the role of rents, rent seeking, and the political choice of environmental policy. Rents are introduced into the political choice of price and quantity regulation under conditions of uncertainty. The model shows how political-economy aspects affect the choice between price and quantity regulation. The contesting of rents associated with different policies affects the regulatory structure and influences the political choice of an environmental policy target. The primary conclusion is that the political choice of environmental policy depends on the interaction between the efficiency of rent transfer and the size of rent-seeking groups within the economy.