Corruption, Pricing of Public Services and Entrepreneurship in Economies with Leakage
AbstractThe paper presents a theoretical model with bureaucratic corruption where bribe income can leak out of an economy. In such an economy given its perception about the extent of leakage the government sets the price of public services required for entrepreneurship by maximizing the welfare of the economy. We show that the corruption persists at the equilibrium. The government prices its services at a level higher than their unit cost of provision in high leakage economies. However, the price falls to unit cost level in more prosperous economies. We also find that the number of entrepreneurs starting business and the total income received as bribe are non-increasing functions of the prosperity level and the extent of leakage from the economy. The predictions of the model generate interesting policy implications: for example it clearly shows that in low prosperity economies the control of leakage may induce higher level of corruption, while the opposite is true in the high prosperity economies.
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 University Library of Munich, Germany in its series MPRA Paper with number 49049.
Date of creation: Jun 2013
Date of revision:
Corruption; Leakage; Entrepreneurship; Pricing of Public Services;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-23 (All new papers)
- NEP-CSE-2013-08-23 (Economics of Strategic Management)
- NEP-CWA-2013-08-23 (Central & Western Asia)
- NEP-ENT-2013-08-23 (Entrepreneurship)
- NEP-NPS-2013-08-23 (Nonprofit & Public Sector)
- NEP-PBE-2013-08-23 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
- Aidis, Ruta & Estrin, Saul & Mickiewicz, Tomasz, 2009.
"Entrepreneurial Entry: Which Institutions Matter?,"
IZA Discussion Papers
4123, Institute for the Study of Labor (IZA).
- Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1990.
"The Allocation of Talent: Implications for Growth,"
NBER Working Papers
3530, National Bureau of Economic Research, Inc.
- Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1990. "The Allocation of Talent: Implicationsfor Growth," University of Chicago - George G. Stigler Center for Study of Economy and State 65, Chicago - Center for Study of Economy and State.
- Tirole, J., 1993.
"The Internal Organization of Government,"
93-11, Massachusetts Institute of Technology (MIT), Department of Economics.
- Roy Thurik & Andreas Freytag, 2006.
"Entrepreneurship and its determinants in a cross-country setting,"
Scales Research Reports
H200616, EIM Business and Policy Research.
- Andreas Freytag & Roy Thurik, 2007. "Entrepreneurship and its determinants in a cross-country setting," Journal of Evolutionary Economics, Springer, vol. 17(2), pages 117-131, April.
- Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
- Bardhan, Pranab, 2006. "The economist's approach to the problem of corruption," World Development, Elsevier, vol. 34(2), pages 341-348, February.
- Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
- Sanjeev Gupta & Hamid Davoodi & Rosa Alonso-Terme, 2002. "Does corruption affect income inequality and poverty?," Economics of Governance, Springer, vol. 3(1), pages 23-45, 03.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.