Red Tape, Corruption and Finance
AbstractWe study the effects of red tape and corruption in a model of occupational choice, entry regulation and imperfect capital markets. Red tape is the set of rules and regulations that private agents are obliged to comply with in order to engage in entrepreneurial activity. Corruption is the payment of bribes to public officials for the purpose of circumventing red tape. Capital market imperfections are the asymmetries of information between borrowers and lenders about the returns to entrepreneurship. We show that both red tape and corrup- tion deter entrepreneurial activity, but that only corruption affects financial market outcomes, including the probability of bankruptcy and the costs of verifying bankruptcy claims. The existence of corruption compounds the effects of both aggregate uncertainty and capital market frictions, each of which compounds the effects of corruption. We examine the interactions between red tape and corruption when both are endogenous to the bureaucratic process.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 82.
Length: 28 pages
Date of creation: 2006
Date of revision:
Contact details of provider:
Postal: Manchester M13 9PL
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-03 (All new papers)
- NEP-DEV-2007-03-03 (Development)
- NEP-ENT-2007-03-03 (Entrepreneurship)
- NEP-PBE-2007-03-03 (Public Economics)
- NEP-REG-2007-03-03 (Regulation)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marianne Sensier).
If references are entirely missing, you can add them using this form.