Corruption-proof minimum regulation for ‘zero emission’: Status incentives–Bane or boon?

This paper explores the possibility of designing environmental regulation that ensures ‘zero emission’, by promoting non-polluting ‘green’ technology adoption by firms, without creating new rooms for corruption. It demonstrates that a benevolent social planner can always implement the ‘target equilibrium’, in which there is ‘no emission and no corruption’, through environmental regulation alone. It also characterizes the ‘target equilibrium’ implementing ‘minimum environmental regulation’, which corresponds to the least possible subsidy expenditure and the lowest possible tax burden on firms, in alternative scenarios. It shows that asymmetric penalties on different bribe-givers, which depend on bribe-giver’s motive behind bribing, makes implementation of the target equilibrium more difficult than uniform penalties. Interestingly, it demonstrates that, in the presence of corruption possibilities, introduction of social reputation enhancing non-monetary incentives for ‘green’ technology adoption never facilitates implementation of the target equilibrium. In fact, in absence of easy to access efficient judiciary, such status incentives make it harder to implement the ‘target equilibrium’.