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Abstract

We consider the supply of a public good based on a publicly-owned facility. The Government has a choice between provision in-house and privatizing the facility and then outsourcing the production. In particular, we focus on corruption in the decision to privatize and on its effect on social welfare when there is asymmetric information on the public and private manager's efficiency. Our analysis shows that a corrupt Government, that chooses to privatize only in exchange for a bribe, makes a positive selection on the private firm's efficiency and, thus, may raise expected social welfare above what an honest Government could get.

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File URL: http://www.unive.it/media/allegato/DIP/Economia/Working_papers/Working_papers_2008/WP_DSE_buia_molinari_43_08.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2008_43.

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Length: 17
Date of creation: 2008
Date of revision:
Handle: RePEc:ven:wpaper:2008_43

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Web page: http://www.unive.it/dip.economia
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Related research

Keywords: Corruption; Privatization; Private vs. public provision.;

Other versions of this item:

Find related papers by JEL classification:

• D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
• H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
• K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
• L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

This paper has been announced in the following NEP Reports:

• NEP-ALL-2009-01-03 (All new papers)
• NEP-CTA-2009-01-03 (Contract Theory & Applications)
• NEP-LAW-2009-01-03 (Law & Economics)

References

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1. Andrei Shleifer, 1998. "State Versus Private Ownership," NBER Working Papers 6665, National Bureau of Economic Research, Inc.
   
   • Andrei Shleifer, 1998. "State versus Private Ownership," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 133-150, Fall.
   • Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
2. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1993. "Why Is Rent-Seeking So Costly to Growth?," American Economic Review, American Economic Association, vol. 83(2), pages 409-14, May.
3. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
   
   • Hart, Oliver & Shleifer, Andrei & Vishny, Robert W, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1127-61, November.
   • Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
4. Ming Lu & Zhao Chen & Shuang Zhang, 2008. "Paying for the Dream of Public Ownership: Case Studies on Corruption and Privatization in China," Transition Studies Review, Springer, vol. 15(2), pages 355-373, September.
5. Lien, Da-Hsiang Donald, 1990. "Corruption and allocation efficiency," Journal of Development Economics, Elsevier, vol. 33(1), pages 153-164, July.
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7. Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-81, August.
8. Stephen Everhart & Jorge Martinez- Vazquez & Robert McNab, 2009. "Corruption, governance, investment and growth in emerging markets," Applied Economics, Taylor and Francis Journals, vol. 41(13), pages 1579-1594.
9. Toke S. Aidt, 2003. "Economic analysis of corruption: a survey," Economic Journal, Royal Economic Society, vol. 113(491), pages F632-F652, November.
10. George Emm Halkos & Nickolaos Tzeremes, 2010. "Corruption and Economic Efficiency: Panel Data Evidence," Global Economic Review, Taylor and Francis Journals, vol. 39(4), pages 441-454.
11. Bin Dong & Benno Torgler, 2010. "The Consequences of Corruption: Evidence from China," School of Economics and Finance Discussion Papers and Working Papers Series 256, School of Economics and Finance, Queensland University of Technology.
    
    • Bin Dong & Benno Torgler, 2010. "The Consequences of Corruption: Evidence from China," CREMA Working Paper Series 2010-06, Center for Research in Economics, Management and the Arts (CREMA).
    • Bin Dong & Benno Torgler, 2010. "The Consequences of Corruption: Evidence from China," Working Papers 2010.73, Fondazione Eni Enrico Mattei.
12. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
13. Jain, Arvind K, 2001. " Corruption: A Review," Journal of Economic Surveys, Wiley Blackwell, vol. 15(1), pages 71-121, February.
14. Bjorvatn, Kjetil & Soreide, Tina, 2005. "Corruption and privatization," European Journal of Political Economy, Elsevier, vol. 21(4), pages 903-914, December.
15. Lien, Da-Hsiang Donald, 1986. "A note on competitive bribery games," Economics Letters, Elsevier, vol. 22(4), pages 337-341.
16. Beck, Paul J. & Maher, Michael W., 1986. "A comparison of bribery and bidding in thin markets," Economics Letters, Elsevier, vol. 20(1), pages 1-5.
17. Axel Dreher & Thomas Herzfeld, 2005. "The Economic Costs of Corruption: A Survey and New Evidence," Public Economics 0506001, EconWPA.
18. Clark, Derek J. & Riis, Christian, 2000. "Allocation efficiency in a competitive bribery game," Journal of Economic Behavior & Organization, Elsevier, vol. 42(1), pages 109-124, May.

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Cited by:

1. Maria Cristina Molinari, 2011. "Corruption in Privatization and Governance Regimes," Working Papers 201_28, Department of Economics, University of Venice "Ca' Foscari".

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