The Environment and corruption: Monetary vs. Non-monetary Incentives and the first best

Rupayan Pal, Preksha Jain () and Prasenjit Banerjee ()
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Preksha Jain: Indira Gandhi Institute of Development Research
Prasenjit Banerjee: University of Manchester

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: This paper analyses environmental regulation under corruption and explores the possibility to attain the first best - `no corruption and no pollution', with a special focus on implications of non-monetary incentives for firms to adapt green technology. It first demonstrates that (a) the effect of corruption control policies on the environment is not always positive, and (b) stricter environmental regulation intensifies the problem of corruption - implying a trade-off between environmental protection and corruption control. Next, it characterizes the `minimum environmental regulation', involving least-subsidy to green technology seller and minimum-tax on brown production, which implements the first best outcome in the equilibrium. Interestingly, by allowing for firm heterogeneity in terms of preferences for social reputation, it demonstrates that introduction of non-monetary incentives in a corrupt environment increases the burden on the government's exchequer, unlike as in absence of corruption possibilities. These results are robust, regardless of (a) whether corrupt transaction is initiated by bribee or briber and (b) whether bribe rate is exogenous or endogenous.

Keywords: Green Technology Subsidy; Brown Tax; Social Status; Non-monetary Incentives; Reputation; Bribe; The first best (search for similar items in EconPapers)
JEL-codes: D73 H23 K42 Q52 Q58 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2022-08
New Economics Papers: this item is included in nep-ene, nep-env, nep-law and nep-res
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Persistent link: https://EconPapers.repec.org/RePEc:ind:igiwpp:2022-011

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