ShanghaiTech SEM Working Paper No. 2019-005
Peiyao Shen
ShanghaiTech University
Regina Betz
Zurich University of Applied Sciences
Andreas Ortmann
UNSW Australia
Rukai Gong
Donghua University
We consider a two-layered review system of environmental regulation where a polluting firm periodically self-reports its emissions to a regulatory authority. The system typically requires a third party to verify the firm’s report and, in addition, an official of the regulatory authority to spot-check. If there are potential gains from corruption, both the verifier and the official might be corruptible. Corruption is more likely in repeated-game situations, as suggested by the literature on corruption experiments. Our experimental design is motivated by the risk of under-reporting in emissions trading schemes where both the verifier and the official are corruptible and focuses on a situation with untruthful reporting and lax enforcement. Our test-bed is a three-player bribery game. We study how different types of rotation — a baseline of fixed matching, a complete rotation treatment, and two incomplete rotation treatments — affect untruthful reporting that requires collusion between three participants in a hierarchical structure. Our findings suggest that complete rotation improves significantly firms’ truthful reporting and verifiers’ truthful verification compared to situations where none is rotated, while incomplete rotation does not have such impact. In our experiment, none of the rotation treatments had a significant impact on the behavior of officials.hanghaiTech University
Keywords: truthful reporting, corruption, rotation, environmental regulation, experiment
Date Written: November, 2019
Available at SSRN: https://ssrn.com/abstract=3492819
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【No. 2019-005】Improving Truthful Reporting of Polluting Firms by Rotating Inspectors Experimental E.pdf
