Corruption with Competition Among Hidden Principals
Generally when there is increased competition on one side of the market, the other side is better off. We study the effects of increased competition among sellers when there is a potentially corrupt agent who procures the good on behalf of a buyer. The model consists of a principal (the owner of a ¯rm), an agent (the manager), and many \hidden principals" (suppliers of an input). Corruption occurs when an agent conspires with one of these hidden principals to appropriate gains at the principal's expense. Suppliers have two key attributes: production cost and \dishonesty" cost (a utility penalty incurred from being corrupt). The effects of increased competition among suppliers depend crucially on whether new suppliers are heterogeneous across these characteristics. When the new suppliers vary according to their productivity levels and/or their honesty levels, there are three possible sources of ine±ciency. First, no transaction may occur, although it is socially e±cient to transact. Second, the most productive supplier may not be used because he is too honest. Third, the most productive supplier may not be used because the principal has (optimally) restricted the pool of potential suppliers. Importantly, we ¯nd that increased competition among sellers may in fact harm the buyer.
|Date of creation:||Jan 2000|
|Date of revision:||Jan 2000|
|Contact details of provider:|| Postal: |
Web page: http://www.udesa.edu.ar
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.:
- Bliss, Christopher & Di Tella, Rafael, 1997. "Does Competition Kill Corruption?," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1001-23, October.
- 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).
- Acemoglu, Daron & Verdier, Thierry, 1998. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," Economic Journal, Royal Economic Society, vol. 108(450), pages 1381-1403, September.
- Acemoglu, D. & Verdier, T., 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," Working papers 96-5, Massachusetts Institute of Technology (MIT), Department of Economics.
- Acemoglu, Daron & Verdier, Thierry, 1996. "Property Rights, Corruption and the Allocation of Talent: A General Equilibrium Approach," CEPR Discussion Papers 1494, C.E.P.R. Discussion Papers.
- Lui, Francis T., 1986. "A dynamic model of corruption deterrence," Journal of Public Economics, Elsevier, vol. 31(2), pages 215-236, November.
- 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.
- Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
- Rose-Ackerman, Susan, 1975. "The economics of corruption," Journal of Public Economics, Elsevier, vol. 4(2), pages 187-203, February.
- Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
When requesting a correction, please mention this item's handle: RePEc:sad:wpaper:24. 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: (Tamara Sulaque)The email address of this maintainer does not seem to be valid anymore. Please ask Tamara Sulaque to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.