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Embezzlement Versus Bribery

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  • C. Simon Fan
  • Chen Lin
  • Daniel Treisman

Abstract

Corrupt officials can use their positions to enrich themselves in two ways. They can steal from the state budget--embezzling or misspending funds--or they can demand extra payments from citizens in return for services--bribery. In many circumstances, embezzlement is less distortionary than bribery. We analyze the tradeoff for governments in deciding how strictly to monitor and punish these two kinds of bureaucratic misbehavior. When bribery is more costly to economic development, governments may tolerate some embezzlement in order to reduce the extent of bribery--even though embezzlement is generally easier to detect. Embezzlement serves as a parallel to the "efficiency wage." This logic appears to hold in China, where misappropriation of public funds by officials appears to be ubiquitous.

Suggested Citation

  • C. Simon Fan & Chen Lin & Daniel Treisman, 2010. "Embezzlement Versus Bribery," NBER Working Papers 16542, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16542
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    References listed on IDEAS

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    1. Christopher J. Waller & Thierry Verdier & Roy Gardner, 2002. "Corruption: Top Down or Bottom Up?," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 688-703, October.
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    3. Aureo de Paula & Jose A. Scheinkman, 2006. "The Informal Sector," Levine's Bibliography 122247000000001030, UCLA Department of Economics.
    4. Bliss, Christopher & Di Tella, Rafael, 1997. "Does Competition Kill Corruption?," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1001-1023, October.
    5. Konstantin Sonin & Scott Gehlbach, 2004. "Businessman Candidates," Econometric Society 2004 North American Summer Meetings 178, Econometric Society.
    6. Harstad, Bård & Svensson, Jakob, 2011. "Bribes, Lobbying, and Development," American Political Science Review, Cambridge University Press, vol. 105(01), pages 46-63, February.
    7. Benjamin A. Olken & Patrick Barron, 2009. "The Simple Economics of Extortion: Evidence from Trucking in Aceh," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 417-452, June.
    8. Hongbin Cai & Hanming Fang & Lixin Colin Xu, 2005. "Eat, Drink, Firms and Government: An Investigation of Corruption from Entertainment and Travel Costs of Chinese Firms," NBER Working Papers 11592, National Bureau of Economic Research, Inc.
    9. Konstantin Sonin & Scott Gehlbach, 2004. "Businessman Candidates," Econometric Society 2004 North American Summer Meetings 178, Econometric Society.
    10. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
    11. Cai, Hongbin & Treisman, Daniel, 2004. "State corroding federalism," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 819-843, March.
    12. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-141, January.
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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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