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Bureaucratic Shirking, Corruption, and Firms’ Environmental Investment and Abatement

Author

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  • Fuhai Hong

    (Lingnan University
    Nanyang Technological University)

  • Tat-How Teh

    (National University of Singapore)

Abstract

Bureaucratic shirking and corruption are prevalent in developing countries. This paper presents a delegation model where a government authorizes an inspector to monitor a polluting firm. The inspector may shirk in monitoring and may accept bribery when discovering noncompliance. We distinguish between two types of environmentally friendly actions, emission abatement and investment to enhance abatement technology, and investigate how bureaucratic shirking and corruption affect firms’ incentives of taking these actions. A corruptible inspector exerts more effort in monitoring the firm (an effort-inducing effect) but fails to enforce environmental regulations when discovering noncompliance (a nonenforcement effect), compared to an (incorruptible) bureaucratic inspector. Moreover, the firm strategically makes more investment to reduce the corruptible inspector’s monitoring effort (a strategic effect on monitoring). We find that investment and abatement decrease when corruption becomes more widespread, only if the corruptible inspector has sufficiently small bargaining power. Moreover, the corruptible inspector’s higher bargaining power leads to higher investment and abatement.

Suggested Citation

  • Fuhai Hong & Tat-How Teh, 2019. "Bureaucratic Shirking, Corruption, and Firms’ Environmental Investment and Abatement," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(2), pages 505-538, October.
    • Handle: RePEc:kap:enreec:v:74:y:2019:i:2:d:10.1007_s10640-019-00327-w
    DOI: 10.1007/s10640-019-00327-w
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    3. Lu, Juan & Li, He, 2023. "The impact of environmental corruption on green consumption: A quantitative analysis based on China's Judicial Document Network and Baidu Index," Socio-Economic Planning Sciences, Elsevier, vol. 86(C).
    4. Tao, Miaomiao & Dagestani, Abd Alwahed & Goh, Lim Thye & Zheng, Yuhang & Le, Wen, 2023. "Do China's anti-corruption efforts improve corporate productivity? A difference-in-difference exploration of Chinese listed enterprises," Socio-Economic Planning Sciences, Elsevier, vol. 87(PB).
    5. Bakry, Walid & Mallik, Girijasankar & Nghiem, Xuan-Hoa & Sinha, Avik & Vo, Xuan Vinh, 2023. "Is green finance really “green”? Examining the long-run relationship between green finance, renewable energy and environmental performance in developing countries," Renewable Energy, Elsevier, vol. 208(C), pages 341-355.
    6. Thomas Giel & Sören Dallmeyer & Daniel Memmert & Christoph Breuer, 2023. "Corruption and Self-Sabotage in Sporting Competitions – An Experimental Approach to Match-Fixing Behavior and the Influence of Deterrence Factors," Journal of Sports Economics, , vol. 24(4), pages 497-525, May.
    7. Huynh, Cong Minh & Le, Quoc Nha & Lam, Thi Huong Tra, 2023. "Is air pollution a government failure or a market failure? Global evidence from a multi-dimensional analysis," Energy Policy, Elsevier, vol. 173(C).
    8. Hong, Fuhai & Yin, Zhendong, 2020. "Collusion, extortion and the government’s organizational structure," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 1-23.

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    More about this item

    Keywords

    Corruption; Bureaucratic shirking; Emission abatement; Technological investment;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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