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Organized vs. competitive corruption

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  • Marco Celentani
  • Juan J. Ganuza

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Abstract

We study bureaucratic corruption in a model in which a constituency sets required levels for a given set of activities. Each activity is carried out by an external provider, and its realization is supervised by a bureaucrat. While bureaucrats are supposed to act on behalf of the constituency, they can decide to be corrupt and allow providers to deliver lower activity levels than contracted in exchange for a bribe. Given this, the constituency sets the optimal activity levels weighing off the value of activity levels, their costs, as well as the possibility for the bureaucrats to be corrupt. We use this setup to study the impact on equilibrium corruption of the degree of decentralization of corruption. To do this we compute equilibrium corruption in two different settings: 1) Each bureaucrat acts in such a way as to maximize his own individual utility (competitive corruption); 2) An illegal syndicate oversee the corruption decisions of the population of bureaucrats in such a way as to maximize total proceeds from corruption (organized corruption). We show that, since average corruption payoff is increasing in the activity levels set by the constituency, and since the latter responds to high levels of corruption by reducing required activity levels, in equilibrium the illegal syndicate acts in such a way as to restrain the total number of corrupt transactions, so that corruption is lower when it is organized than when it is competitive.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 526.

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Date of creation: Jan 2001
Date of revision: Nov 2001
Handle: RePEc:upf:upfgen:526

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Competitive and organized corruption; institutional response;

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References

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  1. Fudenberg, Drew & Levine, David K, 1989. "Reputation and Equilibrium Selection in Games with a Patient Player," Econometrica, Econometric Society, vol. 57(4), pages 759-78, July.
  2. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  3. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  4. Jean Cartier-Bresson, 1997. "Corruption Networks, Transaction Security and Illegal Social Exchange," Political Studies, Political Studies Association, vol. 45(3), pages 463-476.
  5. Celentani, Marco & Ganuza, Juan-Jose, 2002. "Corruption and competition in procurement," European Economic Review, Elsevier, vol. 46(7), pages 1273-1303, July.
  6. Marco Celentani & Juan J. Ganuza, 1999. "Corruption and the Hadleyburg effect," Economics Working Papers 382, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  8. Mauro, Paolo, 1998. "Corruption and the composition of government expenditure," Journal of Public Economics, Elsevier, vol. 69(2), pages 263-279, June.
  9. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  10. Laffont, Jean-Jacques & N'Guessan, Tchetche, 1999. "Competition and corruption in an agency relationship," Journal of Development Economics, Elsevier, vol. 60(2), pages 271-295, December.
  11. Andrew W. Goudie & David Stasavage, 1997. "Corruption: The Issues," OECD Development Centre Working Papers 122, OECD Publishing.
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Cited by:
  1. Marco Celentani & Juan J. Ganuza, 2000. "Corruption and competition in procurement," Economics Working Papers 464, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2001.

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