Abstract
This paper concentrates on a model based framework where a two-tier regulatory authority is entrusted with supervising a number of air polluting firms who emit noxious gases in atmosphere. The firm underreports the true emission level by colluding and making an informal contract with corrupt inspector of lower tier of the authority. The paper show how the entrusted authority attempts to prevent the unethical contract by applying appropriate enforcement policies, and also seeks to review the efficacy and cost of detection with a view for the polluting firms to comply with the environmental standards without any loss in social welfare.
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