Environmental Issues in Public Procurement: How Much Decentralization?

Concerns about the environmental effects of procurement decisions are gaining momentum. We investigate how the environmental quality of public purchases changes under two possible institutional settings: a centralized one, where a single regulator is in charge of both production efficiency and environmental quality, and a decentralized one, where two separate bodies operate, namely an environmental agency securing environmental quality and a procurement agency pursuing efficiency. Informational asymmetries that affect such regulatory relationship are taken into account. We conclude that, under certain conditions, non-cooperation tightens the trade off between incentives to efficiency and rent extraction, resulting in a downward distortion in environmental quality.