Wednesday, June 27, 2007

Corruption, Inequality and the Environment: Theoretical model

As part of some ongoing research the results from these models strike me as potentially interesting and possibly empirically testable.

Our previous theory/empirical paper in this area is "Endogenous Pollution Havens: Does FDI Influence Environmental Regulations?" [Abstract].

Corruption, Inequality, and Environmental Regulation
Date: 2007
By: Jie He (GREDI, Département d'économique, Université de Sherbrooke)
Paul MAKDISSI (Departement d’´economique and CEREF, Universite de Sherbrooke, 2550 boulevard de l’Universite, Sherbrooke, Québec, Canada, J1K 2R1)
Quentin WODON (LCSPR, World Bank, 1818 H Street, NW, Washington, DC 20433, USA)


We develop two public choice models in which environmental regulation is determined endogenously in the presence of agents who are heterogenous in wealth or income. In the first model, regulation is determined by a majority vote, and an increase in inequality induces an increase in environmental standard. In the second model, the environmental standard is chosen by a corrupt bureaucrat. In that model, while the impact of an increase in inequality on the environmental standard is uncertain, a higher level of corruption always reduces the quality of environmental regulation. An empirical analysis using cross-country data confirms the implication of both models.
Keywords: Environmental regulation, corruption, inequality
JEL: Q56 Q58

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