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Corruption and Bureaucratic Structure in a Developing Economy

  • Bennett, John


    (Royal Holloway, University of London)

  • Estrin, Saul


    (London School of Economics)

We address the impact of corruption in a developing economy in the context of an empirically relevant hold-up problem - when a foreign firm sinks an investment to provide infrastructure services. We focus on the structure of the economy’s bureaucracy, which can be centralized or decentralized, and characterize the ‘corruptibility’ of bureaucrats in each case. Results are explained in terms of the non-internalization, under decentralization, of the ‘bribe externality’ and the ‘price externality.’ In welfare terms, decentralization is favoured, relatively speaking, if the tax system is less inefficient, funding is less tight, bureaucrats are less venal, or compensation for expropriation is ungenerous.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2156.

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Length: 43 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2156
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  2. Lawrence H. Goulder & Ian W. H. Parry & Dallas Burtraw, 1996. "Revenue-Raising vs. Other Approaches to Environmental Protection: The Critical Significance of Pre-Existing Tax Distortions," NBER Working Papers 5641, National Bureau of Economic Research, Inc.
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  4. repec:oup:qjecon:v:110:y:1995:i:3:p:681-712 is not listed on IDEAS
  5. J. Luis Guasch & Jean-Jacques Laffont & Stephane Straub, 2003. "Renegotiation of Concession Contracts in Latin America," ESE Discussion Papers 103, Edinburgh School of Economics, University of Edinburgh.
  6. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, vol. 83(3), pages 325-345, March.
  7. Waller, C.J. & Verdier, T. & Gardner, R., 1999. "Corruption: Top Down or Bottom Up?," Papers 1999-12, Laval - Laboratoire Econometrie.
  8. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
  9. Timothy Besley & Stephen Coate, 1999. "Centralized versus Decentralized Provision of Local Public Goods: A Political Economy Analysis," NBER Working Papers 7084, National Bureau of Economic Research, Inc.
  10. Clive Harris, 2003. "Private Participation in Infrastructure in Developing Countries : Trends, Impacts, and Policy Lessons," World Bank Publications, The World Bank, number 15124.
  11. Choi, Jay Pil & Thum, Marcel, 2003. "The economics of repeated extortion," Dresden Discussion Paper Series in Economics 13/03, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  12. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024.
  13. Lui, Francis T, 1985. "An Equilibrium Queuing Model of Bribery," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 760-81, August.
  14. Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
  15. repec:oup:restud:v:61:y:1994:i:1:p:81-108 is not listed on IDEAS
  16. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  17. Pranab Bardhan & Dilip Mookherjee, 2000. "Corruption and Decentralization of Infrastructure Delivery in Developing Countries," Boston University - Institute for Economic Development 104, Boston University, Institute for Economic Development.
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