Political Instability, Corruption and Policy Formation: The Case of Environmental Policy

Abstract

This paper develops a theory of environmental policy formation, taking into consideration the degree of corruptibility and political turbulence. The predictions that emerge are that the interaction between the two variables is important. Political instability has a negative effect on the stringency of environmental regulations if the level of corruption is low, but a positive effect when the degree of corruption is high. Corruption reduces the stringency of environmental regulations, but the effect disappears as political instability increases. The empirical findings are fully consistent with the predictions of the model.

Keywords: Bribery, Lobbying, Uncertainty, Environmental regulations

JEL Classification: D72, D78, H20, Q28