IDEAS home Printed from https://ideas.repec.org/a/kap/ejlwec/v41y2016i3d10.1007_s10657-015-9503-2.html
   My bibliography  Save this article

Corruption and hold-up: the role of intermediaries

Author

Listed:
  • Ajit Mishra

    (University of Bath)

  • Andrew Samuel

    () (Loyola University Maryland)

Abstract

Abstract Corrupt contracts are illegal and, therefore, vulnerable to hold-up. That is, a bureaucrat who has accepted a bribe from a firm in exchange for a license may still choose not to grant the firm that license (hold-up). This paper develops a model to study the role that intermediaries play in preventing hold-up. There are two types of firms, good firms that are legally entitled to receive a license, and harmful firms that are not. Without intermediaries only good firms enter the market, and harmful firms do not enter because of hold-up. Intermediaries are legally permitted to help firms reduce their navigation costs of obtaining licenses. Thus, intermediaries increase entry of good firms. However, by utilizing the legal aspects of their transaction with good firms as leverage against the bureaucrat, intermediaries can prevent hold-up among harmful firms. Thus, intermediaries increase participation by both good and harmful firms and their welfare costs are ambiguous. Data obtained from occurrences of violations of the Foreign Corrupt Practices Act are broadly consistent with our model.

Suggested Citation

  • Ajit Mishra & Andrew Samuel, 2016. "Corruption and hold-up: the role of intermediaries," European Journal of Law and Economics, Springer, vol. 41(3), pages 575-599, June.
  • Handle: RePEc:kap:ejlwec:v:41:y:2016:i:3:d:10.1007_s10657-015-9503-2
    DOI: 10.1007/s10657-015-9503-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10657-015-9503-2
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, vol. 105(428), pages 145-159, January.
    2. Bjorvatn, Kjetil & Torsvik, Gaute & Tungodden, Bertil, 2004. "How middle-men can undermine anti-corruption reforms," Working Papers in Economics 12/04, University of Bergen, Department of Economics.
    3. Jay Pil Choi & Marcel Thum, 2004. "The Economics of Repeated Extortion," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 203-223, Summer.
    4. Lambert-Mogiliansky, Ariane & Majumdar, Mukul & Radner, Roy, 2007. "Strategic analysis of petty corruption: Entrepreneurs and bureaucrats," Journal of Development Economics, Elsevier, vol. 83(2), pages 351-367, July.
    5. Gautam Bose & Shubhashis Gangopadhyay, 2009. "Intermediation in corruption markets," Indian Growth and Development Review, Emerald Group Publishing, vol. 2(1), pages 39-55, April.
    6. Hasker, Kevin & Okten, Cagla, 2008. "Intermediaries and corruption," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 103-115, July.
    7. Ariane Lambert-Mogiliansky & Mukul Majumdar & Roy Radner, 2007. "Strategic Analysis of Petty Corruption: Bureaucrats and Entrepreneurs," Post-Print halshs-00754220, HAL.
    8. Lambsdorff, Johann Graf, 2002. "Making corrupt deals: contracting in the shadow of the law," Journal of Economic Behavior & Organization, Elsevier, vol. 48(3), pages 221-241, July.
    9. Buccirossi, Paolo & Spagnolo, Giancarlo, 2006. "Leniency policies and illegal transactions," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1281-1297, August.
    10. Ariane Lambert-Mogiliansky & Mukul Majumdar & Roy Radner, 2009. "Strategic analysis of petty corruption with an intermediary," Review of Economic Design, Springer;Society for Economic Design, vol. 13(1), pages 45-57, April.
    11. Lucas C. Coffman, 2011. "Intermediation Reduces Punishment (and Reward)," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 77-106, November.
    12. Spagnolo, Giancarlo, 2004. "Divide et Impera: Optimal Leniency Programmes," CEPR Discussion Papers 4840, C.E.P.R. Discussion Papers.
    13. Mikhail Drugov & John Hamman & Danila Serra, 2014. "Intermediaries in corruption: an experiment," Experimental Economics, Springer;Economic Science Association, vol. 17(1), pages 78-99, March.
    14. Johann Graf Lambsdorff & Sitki Utku Teksoz, 2002. "Corrupt Relational Contracting," Departmental Discussion Papers 113, University of Goettingen, Department of Economics.
    15. Güzin Bayar, 2005. "The role of intermediaries in corruption," Public Choice, Springer, vol. 122(3), pages 277-298, March.
    16. Samuel, Andrew, 2009. "Preemptive collusion among corruptible law enforcers," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 441-450, August.
    17. Ariane Lambert-Mogiliansky & Mukul Majumdar & Radner Roy, 2007. "Strategic analysis of petty corruption with an intermediary," Working Papers halshs-00587715, HAL.
    18. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-540, September.
    19. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
    20. Konrad, Kai A. & Skaperdas, Stergios, 1997. "Credible threats in extortion," Journal of Economic Behavior & Organization, Elsevier, vol. 33(1), pages 23-39, May.
    21. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-141, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bribery; Hold-up; Enforcement; Middlemen; Intermediaries; Corruption; Illegal behavior;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:ejlwec:v:41:y:2016:i:3:d:10.1007_s10657-015-9503-2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.