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Corruption, Entry and Pollution

  • Eleni Stathopoulou
  • Dimitrios Varvarigos

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    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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    File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp13-21.pdf
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    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
    Contact details of provider: Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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    1. 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.
    2. 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.
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    5. 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.
    6. Robin Burgess & Matthew Hansen & Benjamin Olken & Peter Potapov & Stefanie Sieber, 2012. "The Political Economy of Deforestation in the Tropics," Working Papers id:4963, eSocialSciences.
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    8. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
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    10. 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.
    11. 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.
    12. Cole, Matthew A., 2007. "Corruption, income and the environment: An empirical analysis," Ecological Economics, Elsevier, vol. 62(3-4), pages 637-647, May.
    13. 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.
    14. Kate Ivanova, 2011. "Corruption and air pollution in Europe," Oxford Economic Papers, Oxford University Press, vol. 63(1), pages 49-70, January.
    15. 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.
    16. Toke S. Aidt, 2009. "Corruption, institutions, and economic development," Oxford Review of Economic Policy, Oxford University Press, vol. 25(2), pages 271-291, Summer.
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