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Embezzlement Versus Bribery

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  • C. Simon Fan
  • Chen Lin
  • Daniel Treisman
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Abstract

Corrupt officials can use their positions to enrich themselves in two ways. They can steal from the state budget—embezzling or misspending funds—or they can demand extra payments from citizens in return for services—bribery. In many circumstances, embezzlement is less distortionary than bribery. We analyze the tradeoff for governments in deciding how strictly to monitor and punish these two kinds of bureaucratic misbehavior. When bribery is more costly to economic development, governments may tolerate some embezzlement in order to reduce the extent of bribery—even though embezzlement is generally easier to detect. Embezzlement serves as a parallel to the “efficiency wage.” This logic appears to hold in China, where misappropriation of public funds by officials appears to be ubiquitous.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16542.

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Date of creation: Nov 2010
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Handle: RePEc:nbr:nberwo:16542

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  1. Gardner, R. & Verdier, T. & Waller, C. J., 1999. "Corruption: Top Down or Bottom Up?," DELTA Working Papers 1999-12, DELTA (Ecole normale supérieure).
  2. Aureo de Paula & Jose A. Scheinkman, 2007. "The Informal Sector," PIER Working Paper Archive 07-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. Benjamin A. Olken & Patrick Barron, 2009. "The Simple Economics of Extortion: Evidence from Trucking in Aceh," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 417-452, 06.
  4. Bliss, Christopher & Di Tella, Rafael, 1997. "Does Competition Kill Corruption?," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1001-23, October.
  5. Daniel Lederman & Norman V. Loayza & Rodrigo R. Soares, 2005. "Accountability And Corruption: Political Institutions Matter," Economics and Politics, Wiley Blackwell, vol. 17, pages 1-35, 03.
  6. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
  7. Cai, Hongbin & Treisman, Daniel, 2004. "State corroding federalism," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 819-843, March.
  8. Scott Gehlbach & Konstantin Sonin & Ekaterina Zhuravskaya, 2006. "Businessman Candidates," Working Papers w0067, Center for Economic and Financial Research (CEFIR).
  9. Harstad, Bård & Svensson, Jakob, 2006. "Bribes, Lobbying and Development," CEPR Discussion Papers 5759, C.E.P.R. Discussion Papers.
  10. Hongbin Cai & Hanming Fang & Lixin Colin Xu, 2005. "Eat, Drink, Firms and Government: An Investigation of Corruption from Entertainment and Travel Costs of Chinese Firms," NBER Working Papers 11592, National Bureau of Economic Research, Inc.
  11. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-41, January.
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