This paper makes some steps toward a formal political economy of environmental policy. Economists' quasi-unanimous preferences for sophisticated incentive regulation is reconsidered. First, we recast the question of instrument choice in the general mechanism literature and provide an incomplete contract approach to political economy. Then, in various settings, we show why constitutional constraints on the instruments of environmental policy may be desirable, even though they appear inefficient from a purely standard economic viewpoint. Their justification lies in the limitations they impose on the politicians' ability to distribute rents. Some insights are then provided into the question often raised regarding the recent emergence of incentive mechanisms in environmental regulation.

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