Self Reporting Reduces Corruption in Law Enforcement

We consider a model of law enforcement where homogenous, risk neutral, and corruptible inspectors are responsible for monitoring …rms’ adoption of pollution prevention technology. A welfare maximizing government can implement appropriate wage policies to prevent collusion, but we …nd that governments characterized by high administrative costs in administrating …nes, or by a low ability to spot and prosecute corruption, may prefer to let corruption happen. By allowing …rms to purchase pollution permits in lieu of the technology, the government is able to increase welfare by reducing red tape, keeping a leaner monitoring force, and eliminating rents to its force. The use of permits further bene…ts society by allowing the country to fully eliminate corruption. This theory can be applied in a variety of law enforcement situations.