Corruption, Pricing of Public Services and Entrepreneurship in Economies with Leakage
The paper presents a theoretical model with bureaucratic corruption where bribe income can leak out of an economy. In such an economy given its perception about the extent of leakage the government sets the price of public services required for entrepreneurship by maximizing the welfare of the economy. We show that the corruption persists at the equilibrium. The government prices its services at a level higher than their unit cost of provision in high leakage economies. However, the price falls to unit cost level in more prosperous economies. We also find that the number of entrepreneurs starting business and the total income received as bribe are non-increasing functions of the prosperity level and the extent of leakage from the economy. The predictions of the model generate interesting policy implications: for example it clearly shows that in low prosperity economies the control of leakage may induce higher level of corruption, while the opposite is true in the high prosperity economies.
|Date of creation:||Jun 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sanjeev Gupta & Hamid Davoodi & Rosa Alonso-Terme, 2002. "Does corruption affect income inequality and poverty?," Economics of Governance, Springer, vol. 3(1), pages 23-45, 03.
- Tirole, J., 1993.
"The Internal Organization of Government,"
93-11, Massachusetts Institute of Technology (MIT), Department of Economics.
- Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1990.
"The Allocation of Talent: Implicationsfor Growth,"
University of Chicago - George G. Stigler Center for Study of Economy and State
65, Chicago - Center for Study of Economy and State.
- 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.
- Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
- Andreas Freytag & Roy Thurik, 2007.
"Entrepreneurship and its determinants in a cross-country setting,"
Journal of Evolutionary Economics,
Springer, vol. 17(2), pages 117-131, April.
- Roy Thurik & Andreas Freytag, 2006. "Entrepreneurship and its determinants in a cross-country setting," Scales Research Reports H200616, EIM Business and Policy Research.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
- Bardhan, Pranab, 2006. "The economist's approach to the problem of corruption," World Development, Elsevier, vol. 34(2), pages 341-348, February.
- Aidis, Ruta & Estrin, Saul & Mickiewicz, Tomasz, 2009.
"Entrepreneurial Entry: Which Institutions Matter?,"
CEPR Discussion Papers
7278, C.E.P.R. Discussion Papers.
- Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:49049. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.