Threshold rules for funding environmental mandates: Accountability and theunfunded mandate reform act

Unfunded mandated are orders imposed by higher level governments on lower-l evel governments without providing the funds necessary for implementation. We highlight the following trade-off associated with unfunded mandates: on the one hand, no funding creates a risk of over-regulation by the higher-le vel government (the accountability principle), but on the other, full fundi ng created a moral hazard problem whereby the lower-level government fails to minimize the cost of implementation. We examine threshold rules that sim ultaneously provide incentives for efficient decisions by both levels of go vernment. We then apply the results to the Unfunded Mandate Reform Act.