Optimal Government Regulations and Red Tape in an Economy with Corruption
We study an economy where agents are heterogeneous in entrepreneurial ability, and may decide to become workers or entrepreneurs. The government is motivated by a production externality to impose regulations on entrepreneurship, and sets a level of red tape -administered by public officials-to test regulation compliance. In an environment where some officials are corrupt, we study what are the optimal levels of regulations and red tape, and to what extent such policies reduce the welfare losses created by corruption. For each level of externalities, we find that high and low levels of corruption create qualitatively different distortions, which in turn changes the nature and reach of optimal policies. Under low levels of corruption and externalities, the government sets low levels of regulations and minimal red tape, and with these policies achieves the first best allocation. When externalities and corruption are above a threshold, only a second best allocation can be achieved. Moreover, when externalities are large, mandating higher levels of red tape is a Pareto improving policy.
|Date of creation:||Mar 2006|
|Date of revision:|
|Contact details of provider:|| Postal: +61 2 6125 3807|
Phone: +61 2 6125 3807
Fax: +61 2 6125 0744
Web page: http://rse.anu.edu.au/cepr.php
More information through EDIRC
References listed on IDEAS
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.:
- Jennifer Hunt & Sonia Laszlo, 2006.
"Bribery: Who Pays, Who Refuses, What Are The Payoffs?,"
Departmental Working Papers
2006-06, McGill University, Department of Economics.
- Hunt, Jennifer & Laszlo, Sonia, 2005. "Bribery: Who Pays, Who Refuses, What are the Payoffs?," CEPR Discussion Papers 5251, C.E.P.R. Discussion Papers.
- Jennifer Hunt & Sonia Laszlo, 2005. "Bribery: Who Pays, Who Refuses, What Are The Payoffs?," William Davidson Institute Working Papers Series wp792, William Davidson Institute at the University of Michigan.
- Jennifer Hunt & Sonia Laszlo, 2005. "Bribery: Who Pays, Who Refuses, What Are the Payoffs?," NBER Working Papers 11635, National Bureau of Economic Research, Inc.
- Cadot, Olivier, 1987. "Corruption as a gamble," Journal of Public Economics, Elsevier, vol. 33(2), pages 223-244, July.
- Guriev, Sergei, 2004.
"Red tape and corruption,"
Journal of Development Economics,
Elsevier, vol. 73(2), pages 489-504, April.
- Acemoglu, D. & Verdier, T., 1996.
"Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach,"
96-5, Massachusetts Institute of Technology (MIT), Department of Economics.
- Acemoglu, Daron & Verdier, Thierry, 1998. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," Economic Journal, Royal Economic Society, vol. 108(450), pages 1381-1403, September.
- Acemoglu, Daron & Verdier, Thierry, 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," CEPR Discussion Papers 1494, C.E.P.R. Discussion Papers.
- Acemoglu, D. & Verdier, T., 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," DELTA Working Papers 96-12, DELTA (Ecole normale supérieure).
- Bliss, Christopher & Di Tella, Rafael, 1997. "Does Competition Kill Corruption?," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1001-23, October.
- Hellman, Joel S. & Jones, Geraint & Kaufmann, daniel, 2000. ""Seize the state, seize the day": state capture, corruption, and influence in transition," Policy Research Working Paper Series 2444, The World Bank.
When requesting a correction, please mention this item's handle: RePEc:auu:dpaper:515. 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: ()
If references are entirely missing, you can add them using this form.