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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.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr133.pdf
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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 133.

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Length: 31 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:man:cgbcrp:133
Contact details of provider: Postal: Manchester M13 9PL
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/

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  1. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2005. "Distribution and Development in a Model of Misgovernance," Proceedings of the German Development Economics Conference, Kiel 2005 15, Verein für Socialpolitik, Research Committee Development Economics.
  2. Ratbek Dzhumashev, 2007. "Corruption, Uncertainty And Growth," Monash Economics Working Papers 15-07, Monash University, Department of Economics.
  3. Keith Blackburn & Gonzalo F. Forgues-Puccio, 2007. "Why is Corruption Less Harmful in Some Countries Than in Others?," Centre for Growth and Business Cycle Research Discussion Paper Series 88, Economics, The Univeristy of Manchester.
  4. Bose, Gautam, 2004. "Bureaucratic delays and bribe-taking," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 313-320, July.
  5. Marco Celentani & Juan J. Ganuza, 2001. "Organized vs. competitive corruption," Economics Working Papers 526, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2001.
  6. 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.
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