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Corruption, Entry and Pollution

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  • Eleni Stathopoulou
  • Dimitrios Varvarigos

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    Abstract

    We model an economy where imperfectly competitive firms choose whether to employ a dirty technology and pay an emission tax or employ a clean technology and incur the cost of its adoption. Bureaucrats who are entrusted with the task of monitoring the emissions of each firm, are corruptible in the sense that they may accept bribes in order to mislead authorities on the firms’ actual emissions. Market entry is an important element in the relation between corruption and pollution. Particularly, the incidence of corruption increases the number of entrants in the market, while the bureaucrats’ incentives to be corrupt are higher in a market with more competitors. We find multiple equilibria where both corruption and pollution are either high or low.

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    Bibliographic Info

    Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 13/21.

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    Date of creation: Sep 2013
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    Handle: RePEc:lec:leecon:13/21

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    Keywords: Corruption; Pollution; Market entry;

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    1. Damania, Richard, 2002. "Environmental controls with corrupt bureaucrats," Environment and Development Economics, Cambridge University Press, vol. 7(03), pages 407-427, July.
    2. Harford, Jon D., 1987. "Self-reporting of pollution and the firm's behavior under imperfectly enforceable regulations," Journal of Environmental Economics and Management, Elsevier, vol. 14(3), pages 293-303, September.
    3. Fredriksson, Per G. & Svensson, Jakob, 2003. "Political instability, corruption and policy formation: the case of environmental policy," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1383-1405, August.
    4. Robin Burgess & Matthew Hansen & Benjamin Olken & Peter Potapov & Stefanie Sieber, 2012. "The Political Economy of Deforestation in the Tropics," STICERD - Economic Organisation and Public Policy Discussion Papers Series 037, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Richard Damania & Per Fredriksson & Muthukumara Mani, 2004. "The Persistence of Corruption and Regulatory Compliance Failures: Theory and Evidence," Public Choice, Springer, vol. 121(3), pages 363-390, February.
    6. Amit K. Biswas & Mohammad Reza Farzanegan & Marcel Thum, 2011. "Pollution, Shadow Economy and Corruption: Theory and Evidence," CESifo Working Paper Series 3630, CESifo Group Munich.
    7. Lopez, Ramon & Mitra, Siddhartha, 2000. "Corruption, Pollution, and the Kuznets Environment Curve," Journal of Environmental Economics and Management, Elsevier, vol. 40(2), pages 137-150, September.
    8. Cole, Matthew A., 2007. "Corruption, income and the environment: An empirical analysis," Ecological Economics, Elsevier, vol. 62(3-4), pages 637-647, May.
    9. Welsch, Heinz, 2004. "Corruption, growth, and the environment: a cross-country analysis," Environment and Development Economics, Cambridge University Press, vol. 9(05), pages 663-693, October.
    10. Malik Arun S., 1993. "Self-Reporting and the Design of Policies for Regulating Stochastic Pollution," Journal of Environmental Economics and Management, Elsevier, vol. 24(3), pages 241-257, May.
    11. Kate Ivanova, 2011. "Corruption and air pollution in Europe," Oxford Economic Papers, Oxford University Press, vol. 63(1), pages 49-70, January.
    12. Thierry Verdier & Daron Acemoglu, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, vol. 90(1), pages 194-211, March.
    13. Aidt, T.S., 2009. "Corruption, Institutions and Economic Development," Cambridge Working Papers in Economics 0918, Faculty of Economics, University of Cambridge.
    14. Thomas N. Hubbard, 1998. "An Empirical Examination of Moral Hazard in the Vehicle Inspection Market," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 406-426, Summer.
    15. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
    16. Axel Dreher & Martin Gassebner, 2013. "Greasing the wheels? The impact of regulations and corruption on firm entry," Public Choice, Springer, vol. 155(3), pages 413-432, June.
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