Environmental monitoring and inspection by government agency is leading factor for firms’ environmental behavior and their environmental performance. China is always criticized for weak enforcement of environmental laws and policies. During its 11 five-year plan (2006-2010), the Chinese central government launched a state-monitored key firm program to enhance environmental monitoring and inspec...

We present a basic exogenous growth model with two consumption goods that differ as regards their contributions to environmental pollution. Allowing for habit formation of the polluting good, we show under which conditions habit formation raises the consumption of the clean good relative to the dirty one in the competitive economy. Further, we demonstrate when habit formation generates a lower ...