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Explaining Corruption: A Common Agency Approach

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  • Norbert Maier

    ()
    (London Business Shcool Economics Department)

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    Abstract

    In 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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    File URL: http://www.econ.core.hu/doc/dp/dp/mtdp0413.pdf
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    Bibliographic Info

    Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0413.

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    Length: 36 pages
    Date of creation: Aug 2004
    Date of revision:
    Handle: RePEc:has:discpr:0413

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    Related research

    Keywords: Corruption; Bribing; Common Agency; Exclusive Dealing; Hidden Contracting;

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    References

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    1. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 995-1025, November.
    2. B. Douglas Bernheim & Michael D. Whinston, . "Exclusive Dealing," Working Papers, Stanford University, Department of Economics 96008, Stanford University, Department of Economics.
    3. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(1), pages 1-31, February.
    4. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
    5. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(3), pages 681-712, August.
    6. Banerjee, Abhijit V, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1289-1332, November.
    7. 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.
    8. Banerjee, A.V., 1997. "A Theory of Misgovernance," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 97-4, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. Rose-Ackerman, Susan, 1975. "The economics of corruption," Journal of Public Economics, Elsevier, Elsevier, vol. 4(2), pages 187-203, February.
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