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Corruption, Extortion, and the Boundaries of the Law

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Abstract

We consider a setup in which a principal must decide whether or not to legalize a socially undesirable activity. The law is enforced by a monitor who may be bribed to conceal evidence of the offense and who may also engage in extortionary practices. The principal may legalize the activity even if it is a very harmful one. The principal may also declare the activity illegal knowing that the monitor will abuse the law to extract bribes out of innocent people. Our model offers a novel rationale for legalizing possession and consumption of drugs while continuing to prosecute drug dealers. (JEL D82, L22, K4) The Author 2008. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Nicolas Melissas, 2009. "Corruption, Extortion, and the Boundaries of the Law," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 25(2), pages 442-471, October.
    • Handle: RePEc:oup:jleorg:v:25:y:2009:i:2:p:442-471
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    1. Mishra, Ajit, 2002. "Hierarchies, incentives and collusion in a model of enforcement," Journal of Economic Behavior & Organization, Elsevier, vol. 47(2), pages 165-178, February.
    2. Hindriks, Jean & Keen, Michael & Muthoo, Abhinay, 1999. "Corruption, extortion and evasion," Journal of Public Economics, Elsevier, vol. 74(3), pages 395-430, December.
    3. Kugler, Maurice & Verdier, Thierry & Zenou, Yves, 2005. "Organized crime, corruption and punishment," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1639-1663, September.
    4. Kessler, Anke S., 2000. "On Monitoring and Collusion in Hierarchies," Journal of Economic Theory, Elsevier, vol. 91(2), pages 280-291, April.
    5. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
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    Cited by:

    1. Karna Basu & Kaushik Basu & Tito Cordella, 2016. "Asymmetric Punishment as an Instrument of Corruption Control," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(6), pages 831-856, December.
    2. Yun Sungho, 2012. "Costs of Engaging in Corruption: Equilibrium with Extortion and Framing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-32, December.
    3. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2010. "Bribery versus extortion: allowing the lesser of two evils," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 179-198, March.
    4. Rupayan Pal & Preksha Jain & Prasenjit Banerjee, 2022. "The Environment and corruption: Monetary vs. Non-monetary Incentives and the first best," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2022-011, Indira Gandhi Institute of Development Research, Mumbai, India.
    5. Burlando, Alfredo & Motta, Alberto, 2016. "Legalize, tax, and deter: Optimal enforcement policies for corruptible officials," Journal of Development Economics, Elsevier, vol. 118(C), pages 207-215.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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