Bribery, hierarchical government, and incomplete environmental enforcement

A two-player model is established in order to examine the effects of environmental policy instruments, budget control, and bribery on decision making of local government and the firms. With or without bribery, the central government can always promote the abatement input by stipulating a higher marginal budget reward for the local government. Bribery can cause policy failure for some environmental instruments such as fines and local fine shares. In a clean society, a higher local fine share or higher fines will unambiguously increase pollution abatement. In a corrupt society, a higher local fine share or higher fines may reduce pollution abatement. With or without bribery, a stricter emission standard has an ambiguous effect on pollution abatement.