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Corruption and Product Market Competition

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Abstract

It is generally considered that more competition might help curb corruption, as rents, which motivate corrupt agreements, are decreasing in the degree of competition. This paper proposes a framework to analyze the relationship between corruption and competition. It studies the optimal incentive scheme for potentially corrupt officials in charge of inspecting firms that compete in the product market. Given that bribe-taking is sometimes tolerated in equilibrium, for specific values of the externality that motivated regulatory intervention, nonmonotonic effects arise and more competition may lead to an increase in corruption. Moreover, it is shown that in this context competition is always welfare improving, even though it might lead to more corruption.

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  • Stephane Straub, 2005. "Corruption and Product Market Competition," Edinburgh School of Economics Discussion Paper Series 131, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:esedps:131
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    Cited by:

    1. Indranil Dutta & Ajit Mishra, 2005. "Inequality, Corruption, and Competition in the Presence of Market Imperfections," WIDER Working Paper Series RP2005-46, World Institute for Development Economic Research (UNU-WIDER).

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