Public Versus Personal Welfare: An Aspect of Environmental Policymaking in Developing Countries

AbstractIn this chapter, we shed light on the nature of the interaction between an environmental authority (EA) and the polluting sector in a developing country (DC) when there is uncertainty about the relative weight that this EA places on public versus its own welfare. Within the context of this general issue, we answer three specific questions for any arbitrary time period t. First, we determine the expected level of pollution as well as the actual pollution in the polluting sector. Second, we compute the mean social loss arising in part from the uncertainty about the relative weight that the EA places on public versus its own welfare. Finally, we solve for the optimal value of the parameter which measures the relative weight the EA places on public versus its own welfare.