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Business corruption, uncertainty and risk aversion

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Author Info
Tina Søreide

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Abstract

The 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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Publisher Info
Paper provided by CMI (Chr. Michelsen Institute), Bergen, Norway in its series CMI Working Papers with number WP 2006: 4.

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Length: 30 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:chm:wpaper:wp2006-4

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Related research
Keywords: Rent-seeking Corruption Firms Risk JEL D81; F23; K40;

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References listed on IDEAS
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  1. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September. [Downloadable!] (restricted)
  2. Daniel Kaufmann & Shang-Jin Wei, 1999. "Does "Grease Money" Speed Up the Wheels of Commerce?," NBER Working Papers 7093, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Foster, Edward, 1981. "The Treatment of Rents in Cost-Benefit Analysis," American Economic Review, American Economic Association, vol. 71(1), pages 171-78, March. [Downloadable!] (restricted)
  4. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug.. [Downloadable!] (restricted)
  5. Andvig, Jens Chr. & Moene, Karl Ove, 1990. "How corruption may corrupt," Journal of Economic Behavior & Organization, Elsevier, vol. 13(1), pages 63-76, January. [Downloadable!] (restricted)
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  6. Lambsdorff, Johann Graf, 2002. " Corruption and Rent-Seeking," Public Choice, Springer, vol. 113(1-2), pages 97-125, October. [Downloadable!] (restricted)
  7. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May. [Downloadable!] (restricted)
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  8. Hillman, Arye L & Katz, Eliakim, 1984. "Risk-Averse Rent Seekers and the Social Cost of Monopoly Power," Economic Journal, Royal Economic Society, vol. 94(373), pages 104-10, March. [Downloadable!] (restricted)
  9. Bruce C. Greenwald & Joseph E. Stiglitz, 1993. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Menezes, Flavio M. & Monteiro, Paulo Klinger, 2006. "Corruption and auctions," Journal of Mathematical Economics, Elsevier, vol. 42(1), pages 97-108, February. [Downloadable!] (restricted)
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  11. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October. [Downloadable!] (restricted)
  12. Konrad, Kai A & Schlesinger, Harris, 1997. "Risk Aversion in Rent-Seeking and Rent-Augmenting Games," Economic Journal, Royal Economic Society, vol. 107(445), pages 1671-83, November. [Downloadable!] (restricted)
  13. Toke S. Aidt, 2003. "Economic analysis of corruption: a survey," Economic Journal, Royal Economic Society, vol. 113(491), pages F632-F652, November. [Downloadable!] (restricted)
  14. Skaperdas, Stergios & Gan, Li, 1995. "Risk Aversion in Contests," Economic Journal, Royal Economic Society, vol. 105(431), pages 951-62, July. [Downloadable!] (restricted)
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