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Inequality, Corruption, and Competition in the Presence of Market Imperfections

  • Dutta, Indranil
  • Mishra, Ajit

In this paper they analyze the relation between inequality, corruption and competition in a developing economy context where markets are imperfect. They consider an economy where different types of households (efficient and inefficient) choose to undertake production activities. For production, households borrow capital from the credit market. They also incur non-input costs which they could avoid by bribing inspectors. Due to information asymmetry and wealth inequality, the credit market fails to screen out the inefficient types. In addition to the imperfect screening, the inefficient type’s entry is further facilitated by corruption. They analyze the market equilibrium and look at some of the implications. They show that a rise in inequality can lead to an increase in corruption along with greater competition. [Research Paper No. 2005/46]

(This abstract was borrowed from another version of this item.)

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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number RP2005/46.

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Length: 42 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:unu:wpaper:rp2005-46
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  1. Erik Berglof & Patrick Bolton, 2001. "The Great Divide and Beyond: Financial Architecture in Transition," William Davidson Institute Working Papers Series 414, William Davidson Institute at the University of Michigan.
  2. Johnson, Simon & Kaufmann, Daniel & McMillan, John & Woodruff, Christopher, 2000. "Why do firms hide? Bribes and unofficial activity after communism," Journal of Public Economics, Elsevier, vol. 76(3), pages 495-520, June.
  3. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-41, January.
  4. 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.
  5. Laffont, Jean-Jacques & N'Guessan, Tchetche, 1999. "Competition and corruption in an agency relationship," Journal of Development Economics, Elsevier, vol. 60(2), pages 271-295, December.
  6. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September.
  7. Banerjee, A.V., 1997. "A Theory of Misgovernance," Working papers 97-4, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. 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.
  9. 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.
  10. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
  11. Stephane Straub, 2005. "Corruption and Product Market Competition," ESE Discussion Papers 131, Edinburgh School of Economics, University of Edinburgh.
  12. repec:oup:qjecon:v:110:y:1995:i:3:p:681-712 is not listed on IDEAS
  13. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  14. Basu, Kaushik & Bhattacharya, Sudipto & Mishra, Ajit, 1992. "Notes on bribery and the control of corruption," Journal of Public Economics, Elsevier, vol. 48(3), pages 349-359, August.
  15. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  16. repec:oup:qjecon:v:118:y:2003:i:1:p:207-230 is not listed on IDEAS
  17. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January.
  18. repec:oup:qjecon:v:112:y:1997:i:4:p:1289-1332 is not listed on IDEAS
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