Business corruption, uncertainty and risk aversion
AbstractThe presence of business-corruption in a market provokes firms to make choices between legal business approaches and illegal bribery. The outcome of a chosen strategy will usually be uncertain at the time the decision is made, and a firm's decision will depend partly on its attitude towards risk. Drawing on the empirical data provided by a survey of 82 Norwegian exporting businesses, the paper proposes a theory about firm's choices between legal and illegal business practices. It begins by describing the risks, uncertainties and benefits attached to bribery, and specifies their impact on firm's propensity to offer bribes. It then demonstrates how risk averse firms can be more inclined to offer bribes than risk neutral, and even risk attracted firms. Although the analysis diverges from existing theory in stressing the differences between illegal and legal forms of rent-seeking, the findings correspond to the results reported in the literature on legal forms of rent-seeking. JEL D81, F23, K40
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Bibliographic InfoPaper provided by CMI (Chr. Michelsen Institute), Bergen, Norway in its series CMI Working Papers with number WP 2006: 4.
Length: 30 pages
Date of creation: 2006
Date of revision:
Rent-seeking Corruption Firms Risk JEL D81; F23; K40;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-08 (All new papers)
- NEP-REG-2006-04-08 (Regulation)
- NEP-UPT-2006-04-08 (Utility Models & Prospect Theory)
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