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Uncertainty, Entrepreneurship and the Organisation of Corruption


  • Keith Blackburn
  • Yuanyuan Wang


We develop a model of occupational choice in which private agents have the option of either working in some costless, but low-yielding, activity (subsistence production), or undertaking a costly, but potentially more rewarding, venture (entrepreneurship). In the case of the latter, loans must be acquired from ?nancial intermediaries and licenses must be obtained from public officials. Associated with these tasks are two potential sources of imperfection - an imperfection in fi?nancial markets due to asymmetric information and an imperfection in governance due to rent-seeking. Rent-seeking is risky because of a random probability that it will be detected and punished. Against this background, we show how corruption has di¤erent effects depending on the way that it is practised: in the case of disorganised corruption, bribe payments are uncertain and capital market imperfections are allowed to surface; in the case of organised corruption both of these features are removed. The implication is that, in terms of deterring entrepreneurial activity, organised corruption is likely to be the lesser of the two evils, even if bribe demands are higher in this case. This result may be used to explain the puzzle of why corruption appears to be much less damaging in some countries than in others.

Suggested Citation

  • Keith Blackburn & Yuanyuan Wang, 2009. "Uncertainty, Entrepreneurship and the Organisation of Corruption," Centre for Growth and Business Cycle Research Discussion Paper Series 133, Economics, The Univeristy of Manchester.
  • Handle: RePEc:man:cgbcrp:133

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    References listed on IDEAS

    1. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2006. "Financial Liberalisation, Bureaucratic Corruption and Economic," Proceedings of the German Development Economics Conference, Berlin 2006 8, Verein für Socialpolitik, Research Committee Development Economics.
    2. Bose, Gautam, 2004. "Bureaucratic delays and bribe-taking," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 313-320, July.
    3. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2007. "Distribution and development in a model of misgovernance," European Economic Review, Elsevier, vol. 51(6), pages 1534-1563, August.
    4. Marco Celentani & Juan-José Ganuza, 2002. "Organized vs. Competitive Corruption," Annals of Operations Research, Springer, vol. 109(1), pages 293-315, January.
    5. Ratbek Dzhumashev, 2007. "Corruption, Uncertainty And Growth," Monash Economics Working Papers 15-07, Monash University, Department of Economics.
    6. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2009. "Why is corruption less harmful in some countries than in others?," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 797-810, December.
    7. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 503-530.
    8. Isaac Ehrlich & Francis T. Lui, 1999. "Bureaucratic Corruption and Endogenous Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 270-293, December.
    9. Paldam, Martin, 2002. "The cross-country pattern of corruption: economics, culture and the seesaw dynamics," European Journal of Political Economy, Elsevier, vol. 18(2), pages 215-240, June.
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    Cited by:

    1. Dzhumashev Ratbek, 2016. "The Role of Income Uncertainty in the Corruption–Growth Nexus," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 1169-1201, April.

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