Abstract
This paper investigates interactions between waste and enforcement policies in the presence of a corruptible bureaucrat. We set up a repeated game obtained by an infinite repetition of a three stage game, where a firm producing illegal waste can bribe a bureaucrat in charge of monitoring its disposal choices. The bureaucrat may accept or not the bribe and chooses whether to hide illegal waste disposal to a national waste authority. We study conditions under which corruption can arise in equilibrium, and find that illegal disposal is larger under corruption, while, surprisingly, the bribe does not necessarily decrease with the punishment for detected corruption. Finally, our analysis suggests that increasing the interactions between the regulated firm and the bureaucrat increases illegal disposal via corruption.
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Notes
The quadratic assumption for legal disposal costs rests on the hypothesis that legal disposal may imply increasing marginal costs due to capacity constraints. For example, the marginal costs needed to store waste before they are transported to the disposal site, given the size of the storage facility, increase with waste volumes, justifying a quadratic functional form. Under an analytical point of view, this assumption is needed to guarantee the strict convexity of the regulated firm’s cost function.
In line with Mookherjee and Png (1995), it would be possible to extend our model to account for continuous underreporting, i.e. \(0<r<x.\) We expect the bulk of our results not to change if such an extension is introduced.
This assumption is not relevant in the static setting, but it will turn out to be important when we switch to a repeated game.
Note that \(C^{G}\) is convex in x.
Clearly, if the bureaucrat does not accept the bribe, she will never have the incentive to report \(r=0\) because her hiding behavior can be detected by the authority with positive probability.
Subgame perfection is ensured by the absence of profitable one-shot deviations (Mailath and Samuelson 2006), where a one-shot deviation from strategy \(\sigma _{i}\) is a strategy which, at time k, prescribes a different action than \(\sigma _{i}\) for a unique history, but which plays identical to \(\sigma _{i}\) in every period other than k.
It is easily shown that the ICC constraint guarantees that the bureaucrat does not get negative profits in any repetition of the stage game, i.e. (3) implies that \(b>vFx.\) The intuition rests on the punishment phase being an infinite repetition of the equilibrium of the static game where, in case of a deviation, the bureaucrat is punished with the equilibrium payoff of the static game (which is always 0). As a result, under (3), the bureaucrat has an incentive to accept the bribe in any repetition of the stage game.
\(x^{*}-x^{G}=\frac{1}{\mu }( t+\mu -v( F+T) -\frac{Fv}{\delta (1-v) }) -\frac{1}{\mu }(t-T+\mu )\) where, as \(T>\frac{vF(\delta (1-v) +1) }{\delta (1-v) ^{2}}\) (see Proposition 1), then \(((1-v) T-Fv \frac{\delta (1-v) +1}{\delta (1-v) }) >0\) and \(x^{*}-x^{G}>0.\)
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Cesi, B., D’Amato, A. & Zoli, M. Corruption in environmental policy: the case of waste. Econ Polit 36, 65–78 (2019). https://doi.org/10.1007/s40888-017-0087-x
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DOI: https://doi.org/10.1007/s40888-017-0087-x