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Corruption, Extortion, and the Boundaries of the Law

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Author Info

  • Svetlana Andrianova

    ()
    (University of Leiceter)

  • Nicolas Melissas

    ()
    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

Abstract

We consider a set-up in which a principal must decide whether or not to legalise a socially undesirable activity. The law is enforced by a monitor who may be bribed to conceal evidence of the offence and who may also engage in extortionary practices. The principal only declares the activity illegal if the activity if "very harmful" and if the private benefit (received by the agent if she breaks the law) is "high". We present comparative static results and highlight policy implications.

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File URL: http://ftp.itam.mx/pub/academico/inves/melissas/06-05.pdf
File Function: First version, 1996
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Bibliographic Info

Paper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 0605.

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Length: 32 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:cie:wpaper:0605

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Keywords: Moral Hazard; Collusion; Non-contractive Output; Rewards and Punishments;

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  1. Kugler, Maurice & Verdier, Thierry & Zenou, Yves, 2005. "Organized crime, corruption and punishment," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1639-1663, September.
  2. Mishra, Ajit, 2002. "Hierarchies, incentives and collusion in a model of enforcement," Journal of Economic Behavior & Organization, Elsevier, vol. 47(2), pages 165-178, February.
  3. Kessler, Anke S., 2000. "On Monitoring and Collusion in Hierarchies," Journal of Economic Theory, Elsevier, vol. 91(2), pages 280-291, April.
  4. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  5. Hindriks, J. & Keen, M. & Muthoo, A., 1998. "Corruption, Extortion and Evasion," Discussion Papers 9809, Exeter University, Department of Economics.
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