Abstract: We conduct a laboratory experiment with a dynamic public bad game to investigate the leadership effect on corporate environmental investment behaviors. The main treatment variable is the type of leadership, categorized into no leader, unconstrained leader, constrained leader and recommended leader. For each leadership mechanism, we characterize the Markov perfect equilibrium and compare it with the social optimum outcome. The results indicate that the leadership does not always have a positive impact on stimulating environmental investments. Specifically, compared to the no-leader mechanism, both constrained leaders and recommended leaders significantly enhance the level of environmental investment in a group, whereas the presence of an unconstrained leader tends to diminish it. Therefore, implementing binding constraints or providing clear recommendations for leaders can both effectively promote corporate environmental investments and contribute to ecological protection.

Key words: leadership effect, public bad game, environment investment