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Endogenous Corruption in Economic Development

  • K Blackburn
  • N Bose
  • M E Haque

This paper presents an analysis of the joint determination of bureaucratic corruption and economic development. The analysis is based on a simple neo-classical growth model in which bureaucrats are employed as agents of the government to collect taxes from households. Corruption is reflected in bribery and tax evasion as bureaucrats conspire with households to provide false information to the government. Costly concealment of this activity leads to a loss of resources available for productive investments. The incentive for an individual bureaucrat to accept a bribe depends on the number of other bureaucrats who are expected to accept bribes. This strategic interaction in bureaucratic decision making produces multiple (frequency-dependent) equilibria associated with different incidences of corruption. The predictions of the model accord strongly with recent empirical evidence.

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Paper provided by Economics, The University of Manchester in its series The School of Economics Discussion Paper Series with number 0302.

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Date of creation: 2003
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Handle: RePEc:man:sespap:0302
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  1. Rose-Ackerman, Susan, 1975. "The economics of corruption," Journal of Public Economics, Elsevier, vol. 4(2), pages 187-203, February.
  2. Alberto Ades & Rafael Di Tella, 1997. "The New Economics of Corruption: a Survey and Some New Results," Political Studies, Political Studies Association, vol. 45(3), pages 496-515.
  3. repec:cup:cbooks:9780521632935 is not listed on IDEAS
  4. Thierry Verdier & Daron Acemoglu, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, vol. 90(1), pages 194-211, March.
  5. Banerjee, A.V., 1997. "A Theory of Misgovernance," Working papers 97-4, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Acemoglu, D. & Verdier, T., 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," DELTA Working Papers 96-12, DELTA (Ecole normale supérieure).
  7. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  8. Barreto, Raul A., 2000. "Endogenous corruption in a neoclassical growth model," European Economic Review, Elsevier, vol. 44(1), pages 35-60, January.
  9. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  10. Beck, Paul J. & Maher, Michael W., 1986. "A comparison of bribery and bidding in thin markets," Economics Letters, Elsevier, vol. 20(1), pages 1-5.
  11. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
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  13. Cadot, Olivier, 1987. "Corruption as a gamble," Journal of Public Economics, Elsevier, vol. 33(2), pages 223-244, July.
  14. Andvig, J.C. & Ove Moene, K., 1988. "How Corruption May Corrupt," Memorandum 20/1988, Oslo University, Department of Economics.
  15. repec:cup:cbooks:9780521659123 is not listed on IDEAS
  16. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, vol. 105(428), pages 145-59, January.
  17. Susanto Basu & David D. Li, 1998. "Corruption in Transition," William Davidson Institute Working Papers Series 161, William Davidson Institute at the University of Michigan.
  18. Lien, Da-Hsiang Donald, 1986. "A note on competitive bribery games," Economics Letters, Elsevier, vol. 22(4), pages 337-341.
  19. Abhijit V. Banerjee, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1289-1332.
  20. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
  21. Sarte, Pierre-Daniel G., 2000. "Informality and rent-seeking bureaucracies in a model of long-run growth," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 173-197, August.
  22. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
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