Abstract
Environmental regulations typify a large class of activities in the public sector where government agencies are required to monitor the degree of compliance. These tasks are usually delegated to bureaucrats who, as self-interested agents, may engage in corrupt behavior. Such problems abound, particularly in developing countries, where corruption is regarded as one of the major causes of environmental degradation. This paper investigates the implications of corruption for the optimal design of environmental regulations and analyses the interaction between the prosecution rate, monitoring rate, and fines. It is shown that even if corruption can be deterred the fact that it may occur substantially impedes the ability of a regulator to control environmentally degrading activities.
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