Environmental Regulation in a Transitional Political System: Delegation of Regulation and Perceived Corruption in South Africa

I study the economic motivations behind a reduction in the discretionary power of environmental regulators, and the impact that such reduction has on perceived corruption in South Africa. I examine the transition from the Air Pollution Protection Act of 1965 to the Air Quality Act of 2005, a change from full to partial delegation of regulation. By constructing a principal-agent model, I argue that this transition might have occurred because of an increase in the dispersion of rent-seeking motivations of public agents. This happens because, from the principal’s perspective, the possible harm— loose pollution control and misappropriation of environmental fines—generated by corrupt agents is greater than the potential benefits brought by diligent agents. In my empirical analysis, I use diff-in-diffs models for a two-period panel with 191 South African firms to show that the regulatory change decreased treated firms’ perceived corruption, but did not improve other institutional quality measures.