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An optimization approach to the link between productivity, relocation cost and corruption

Author

Listed:
  • Pham Khanh

    (Thang Long Institute of Mathematics and Applied Science)

  • Nguyen Khac Minh

    (Thang Long Institute of Mathematics and Applied Science)

  • Nguyen Thi Xuan Thu

    (Thang Long Institute of Mathematics and Applied Science
    Diplomatic Academy of Vietnam)

Abstract

This paper aims to model the link between productivity, relocation cost and corruption by applying game theory. Firms sometimes compete with one another through the bribes that they offer authorities in exchange for special privileges. Provinces are also in competition with another to retain and attract investors. The optimization problem identifies what fraction of revenue is optimal for a bribe so that both firms and authorities can optimize their outcomes. We have proven that corruption is the equilibrium outcome. Notably, the bribe rate as a share of revenue should decrease as firms’ productivity enhances, especially for those who are able to relocate to other provinces.

Suggested Citation

  • Pham Khanh & Nguyen Khac Minh & Nguyen Thi Xuan Thu, 2022. "An optimization approach to the link between productivity, relocation cost and corruption," Annals of Operations Research, Springer, vol. 312(1), pages 427-439, May.
    • Handle: RePEc:spr:annopr:v:312:y:2022:i:1:d:10.1007_s10479-021-04360-1
    DOI: 10.1007/s10479-021-04360-1
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    References listed on IDEAS

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