NCPA - National Center for Policy Analysis

Unintended Consequence of Environmental Enforcement: Corruption?

August 23, 2002

Loggers, poachers and polluters are taxed, fined and, ultimately, threatened with prison. The logic is simple -- the more you pollute, the more you have to pay. But this approach does not always work.

In many countries, harsher penalties seem only to encourage corruption and bribery, and ultimately more environmental damage, argues Richard Damania of the University of Adelaide. In Thailand, for example, the government has bumped up fines. But because bribery is hard to detect, all the draconian policy has done is drive up the asking-price for bribes.

To afford them, companies simply pollute more by stepping up production to maintain profits. Likewise, raising the tax against pollution simply drives up the incentive to give out bribes and under-report emissions.

Since corruption is both difficult and dangerous to research, Damania uses mathematical analysis. His solution is to have taxes rise at a decreasing rate with emissions. This weakens the incentive for wealthy companies to participate in bribery.

According to Damania:

  • High polluters should actually be taxed less, because the big movers and shakers have the money to pull off large bribes.
  • Similarly, companies should be audited less often to check their reported emissions relative to the more they produce.
  • That is because companies that report low emissions are more likely to be lying than those that report high ones.

Although most countries tax all emissions at a constant rate, Damania's version might work better in the developing world, where corruption and pollution are rife. For instance, he points out, Thailand has some of the most stringent regulations on pollution. But Bangkok is one of the most polluted places on Earth.

Source: Richard Damania, "Environmental Controls with Corrupt Bureaucrats," Environment and Development Economics, July 2002 and Nicola Jones, "Heavy Environmental Polluters 'Should Pay Less,'", August 22, 2002.


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