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Corruption and Product Market Competition

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Abstract

It is generally considered that more competition might help curb corruption, as rents, which motivate corrupt agreements, are decreasing in the degree of competition. This paper proposes a framework to analyze the relationship between corruption and competition. It studies the optimal incentive scheme for potentially corrupt officials in charge of inspecting firms that compete in the product market. Given that bribe-taking is sometimes tolerated in equilibrium, for specific values of the externality that motivated regulatory intervention, nonmonotonic effects arise and more competition may lead to an increase in corruption. Moreover, it is shown that in this context competition is always welfare improving, even though it might lead to more corruption.

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 131.

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Length: 34
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:edn:esedps:131

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  1. Bliss, Christopher & Di Tella, Rafael, 1997. "Does Competition Kill Corruption?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(5), pages 1001-23, October.
  2. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  3. Jean-Jacques Laffont & Jean Tirole, 1988. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," Working papers 506, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 103(416), pages 119-41, January.
  5. Toke S. Aidt, 2003. "Economic analysis of corruption: a survey," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(491), pages F632-F652, November.
  6. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(428), pages 145-59, January.
  7. Laffont, Jean-Jacques & N'Guessan, Tchetche, 1999. "Competition and corruption in an agency relationship," Journal of Development Economics, Elsevier, vol. 60(2), pages 271-295, December.
  8. Acemoglu, D. & Verdier, T., 1997. "The Choice between Market Failures and Corruption," DELTA Working Papers, DELTA (Ecole normale supérieure) 97-06, DELTA (Ecole normale supérieure).
  9. Ades, Alberto & Di Tella, Rafael, 1997. "National Champions and Corruption: Some Unpleasant Interventionist Arithmetic," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(443), pages 1023-42, July.
  10. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  11. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(5), pages 988-1002, October.
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Cited by:
  1. Dutta, Indranil & Mishra, Ajit, 2005. "Inequality, Corruption, and Competition in the Presence of Market Imperfections," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2005/46, World Institute for Development Economic Research (UNU-WIDER).

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