Explaining Corruption: A Common Agency Approach
AbstractIn many cases, politicians and government officials are forbidden by law to accept monetary donations from interest groups or other outside parties as these monetary transfers are thought to cause social inefficiencies. The empirical literature supports this view as it finds a negative link between corruption (secret payments to government officials) and growth. However, banning monetary transfers to government officials might be discouraged as it is equivalent to restricting transactions in the market for political decision-making and inefficiencies can arise exactly because of these constraints. In this paper, we address the following question: Under which conditions should the government forbid its officials to accept monetary donations, even though enforcing such bans is costly and secret transfers still may occur? In particular, we analyze a common agency game, in which a government official acts as the common agent of the government and some third party, and identify some conditions under which banning economic interactions between the official and the third party is welfare enhancing. We also explain why secret monetary transfers to government officials can lead to economic inefficiencies.
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Bibliographic InfoPaper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0413.
Length: 36 pages
Date of creation: Aug 2004
Date of revision:
Corruption; Bribing; Common Agency; Exclusive Dealing; Hidden Contracting;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
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