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A Model Of Bureaucracy And Corruption

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Author Info
Shouyong Shi
Ted Temzelides

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Abstract

We analyze bureaucracy and corruption in a market with decentralized exchange and "lemons." Exchange is modeled as a sequence of bilateral, random matches. Agents have private information about the quality of goods they produce and can supplement trade with socially inefficient bribes. Bureaucracy is modeled as a group of agents who enjoy centralized production and consumption. Transaction patterns between the bureaucracy and the private sector are fully endogenous. Centralized production and consumption in the bureaucracy give rise to low power incentives for the individual bureaucrats. As a result, private agents might bribe bureaucrats, whereas they do not bribe each other. An equilibrium with corruption and an equilibrium without corruption can coexist. We discuss some welfare implications of the model. Copyright 2004 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 45 (2004)
Issue (Month): 3 (08)
Pages: 873-908
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Handle: RePEc:ier:iecrev:v:45:y:2004:i:3:p:873-908

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  1. Guiseppe Di Vita, . "Corruption, Exogenous Changes in Incentives and Deterrence," German Working Papers in Law and Economics 2006-1-1150, Berkeley Electronic Press. [Downloadable!]
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