Foreign Direct Investment, Institutional Level and Pollution Quota

Abstract

This study develops a model of institutional economics that involves consumers, producers and government, as well as the dishonest agents that work in the public sector. This model is useful for determining the optimum institutional level that must be set by the government in order to attain economic and environmental balance in the country under an oligopolistic scheme of Foreign Direct Investment (FDI). Furthermore, the proposal enables the calculation of the optimal pollution quota.The results of the model can be used to deduce a series of recommendations for the area of environmental policy, which have the objective of maximizing welfare levels in the FDI host country.