On the Dynamics and Effects of Corruption on Environmental Protection

This paper studies the joint dynamics of corruption and pollution in a model of evolutionary game theory, where firms face a given pollution standard and the government must check the compliance to this standard by means of public officials who can be honest or not. A novelty of our paper is that officials decide to be honest or not by imitation, while firms are assumed to be inter-temporal profit maximizers. One of the main findings of the paper is that one possible “ bad” outcome characterised by a whole society of polluting firms and corrupt officers can be sustained by rational agents who learn by imitation, despite the existence of multiplicity of equilibria of a perfectly honest population and a more realistic simultaneous presence of honest and dishonest agents. Furthermore, we show that the firm’s discount rate is an important decision factor that influences the environmental pollution.