Business corruption, uncertainty and risk aversion
The presence of business-corruption in a market provokes firms to make choices between legal business approaches and illegal bribery. The outcome of a chosen strategy will usually be uncertain at the time the decision is made, and a firm's decision will depend partly on its attitude towards risk. Drawing on the empirical data provided by a survey of 82 Norwegian exporting businesses, the paper proposes a theory about firm's choices between legal and illegal business practices. It begins by describing the risks, uncertainties and benefits attached to bribery, and specifies their impact on firm's propensity to offer bribes. It then demonstrates how risk averse firms can be more inclined to offer bribes than risk neutral, and even risk attracted firms. Although the analysis diverges from existing theory in stressing the differences between illegal and legal forms of rent-seeking, the findings correspond to the results reported in the literature on legal forms of rent-seeking. JEL D81, F23, K40
|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +47 55 57 40 00
Fax: +47 55 57 41 66
Web page: http://www.cmi.noEmail:
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.:
- Greenwald, Bruce C & Stiglitz, Joseph E, 1993.
"Financial Market Imperfections and Business Cycles,"
The Quarterly Journal of Economics,
MIT Press, vol. 108(1), pages 77-114, February.
- Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
- Paulo Klinger Monteiro & Flavio Menezes, 2001.
"Corruption and auctions,"
- Daniel Kaufmann & Shang-Jin Wei, 2000.
"Does 'Grease Money' Speed Up the Wheels of Commerce?,"
IMF Working Papers
00/64, International Monetary Fund.
- Kaufman, Daniel & Shang-Jin Wei, 1999. "Does"grease money"speed up the wheels of commerce?," Policy Research Working Paper Series 2254, The World Bank.
- Daniel Kaufmann & Shang-Jin Wei, 1999. "Does "Grease Money" Speed Up the Wheels of Commerce?," NBER Working Papers 7093, National Bureau of Economic Research, Inc.
- Kaufmann, Daniel & Wei, Shang-Jin, 1999. "Does 'Grease Money' Speed Up the Wheels of Commerce?," MPRA Paper 8209, University Library of Munich, Germany.
- Toke S. Aidt, 2003. "Economic analysis of corruption: a survey," Economic Journal, Royal Economic Society, vol. 113(491), pages F632-F652, November.
- Hillman, Arye L & Katz, Eliakim, 1984. "Risk-Averse Rent Seekers and the Social Cost of Monopoly Power," Economic Journal, Royal Economic Society, vol. 94(373), pages 104-10, March.
- Miles S. Kimball, 1991.
"Standard Risk Aversion,"
NBER Technical Working Papers
0099, National Bureau of Economic Research, Inc.
- Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
- Andvig, J.C. & Ove Moene, K., 1988.
"How Corruption May Corrupt,"
20/1988, Oslo University, Department of Economics.
- Foster, Edward, 1981. "The Treatment of Rents in Cost-Benefit Analysis," American Economic Review, American Economic Association, vol. 71(1), pages 171-78, March.
- Konrad, Kai A & Schlesinger, Harris, 1997. "Risk Aversion in Rent-Seeking and Rent-Augmenting Games," Economic Journal, Royal Economic Society, vol. 107(445), pages 1671-83, November.
- Skaperdas, Stergios & Gan, Li, 1995. "Risk Aversion in Contests," Economic Journal, Royal Economic Society, vol. 105(431), pages 951-62, July.
- Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
- Lambsdorff, Johann Graf, 2002. " Corruption and Rent-Seeking," Public Choice, Springer, vol. 113(1-2), pages 97-125, October.
- Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
- Graf Lambsdorff, Johann, 2005. "Consequences and causes of corruption: What do we know from a cross-section of countries?," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-34-05, University of Passau, Faculty of Business and Economics.
When requesting a correction, please mention this item's handle: RePEc:chm:wpaper:wp2006-4. 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: (Robert Sjursen)
If references are entirely missing, you can add them using this form.