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Corruption and Competition in the Presence of Inequality and Market Imperfections

Author

Listed:
  • Indranil Dutta

    (University of Sheffield & University of East Anglia)

  • Ajit Mishra

    (University of Dundee)

Abstract

We analyze the relation between corruption, competition and inequality in a developing economy context where markets are imperfect and there is wealth inequality. We consider an economy where different types of households (efficient and inefficient) choose whether to enter the production sector or not. Due to information asymmetry and wealth inequality, the market fails to screen out the inefficient types. In addition to the imperfect screening in the credit market, the inefficient type's entry is further facilitated by corruption in the product market. We analyze the market equilibrium and look at some of the implications. We show that a rise in inequality can lead to an increase in corruption along with greater competition. By endogenising the types, we also show how in the presence of corruption, initial wealth inequality will distort the incentives of the poor and lead to trap-like situations.

Suggested Citation

  • Indranil Dutta & Ajit Mishra, 2004. "Corruption and Competition in the Presence of Inequality and Market Imperfections," Working papers 123, Centre for Development Economics, Delhi School of Economics.
  • Handle: RePEc:cde:cdewps:123
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    References listed on IDEAS

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    1. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter.
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    12. Erik Berglof & Patrick Bolton, 2002. "The Great Divide and Beyond: Financial Architecture in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 77-100, Winter.
    13. Basu, Kaushik & Bhattacharya, Sudipto & Mishra, Ajit, 1992. "Notes on bribery and the control of corruption," Journal of Public Economics, Elsevier, vol. 48(3), pages 349-359, August.
    14. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    15. 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.
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    Cited by:

    1. Andrzej Bolesta, 2007. "China As A Developmental State," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 3(5), pages 105-111.
    2. Mishra, Ajit, 2006. "Persistence of corruption: some theoretical perspectives," World Development, Elsevier, vol. 34(2), pages 349-358, February.
    3. Ajit Mishra, 2004. "Corruption: A Review," Dundee Discussion Papers in Economics 170, Economic Studies, University of Dundee.
    4. Ajit Mishra, 2004. "Incentives, Norms and the Persistence of Corruption," Dundee Discussion Papers in Economics 161, Economic Studies, University of Dundee.
    5. repec:eut:journl:v:11:y:2006:i:3:p:59 is not listed on IDEAS
    6. Alexeev, Michael & Song, Yunah, 2013. "Corruption and product market competition: An empirical investigation," Journal of Development Economics, Elsevier, vol. 103(C), pages 154-166.
    7. Diaby, Aboubacar & Sylwester, Kevin, 2015. "Corruption and Market Competition: Evidence from Post-Communist Countries," World Development, Elsevier, vol. 66(C), pages 487-499.

    More about this item

    Keywords

    Corruption; Competition; Credit Market; Inequality; Screening.;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • I20 - Health, Education, and Welfare - - Education - - - General
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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