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Organized vs. competitive corruption

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Abstract

We study bureaucratic corruption in a model in which a constituency sets required levels for a given set of activities. Each activity is carried out by an external provider, and its realization is supervised by a bureaucrat. While bureaucrats are supposed to act on behalf of the constituency, they can decide to be corrupt and allow providers to deliver lower activity levels than contracted in exchange for a bribe. Given this, the constituency sets the optimal activity levels weighing off the value of activity levels, their costs, as well as the possibility for the bureaucrats to be corrupt. We use this setup to study the impact on equilibrium corruption of the degree of decentralization of corruption. To do this we compute equilibrium corruption in two different settings: 1) Each bureaucrat acts in such a way as to maximize his own individual utility (competitive corruption); 2) An illegal syndicate oversee the corruption decisions of the population of bureaucrats in such a way as to maximize total proceeds from corruption (organized corruption). We show that, since average corruption payoff is increasing in the activity levels set by the constituency, and since the latter responds to high levels of corruption by reducing required activity levels, in equilibrium the illegal syndicate acts in such a way as to restrain the total number of corrupt transactions, so that corruption is lower when it is organized than when it is competitive.

Suggested Citation

  • Marco Celentani & Juan J. Ganuza, 2001. "Organized vs. competitive corruption," Economics Working Papers 526, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2001.
  • Handle: RePEc:upf:upfgen:526
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    References listed on IDEAS

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    1. repec:wsi:wschap:9789812818478_0007 is not listed on IDEAS
    2. Andrew W. Goudie & David Stasavage, 1997. "Corruption: The Issues," OECD Development Centre Working Papers 122, OECD Publishing.
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    4. Marco Celentani & Juan J. Ganuza, 1999. "Corruption and the Hadleyburg effect," Economics Working Papers 382, Department of Economics and Business, Universitat Pompeu Fabra.
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    6. 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.
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    11. Celentani, Marco & Ganuza, Juan-Jose, 2002. "Corruption and competition in procurement," European Economic Review, Elsevier, vol. 46(7), pages 1273-1303, July.
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    Cited by:

    1. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2009. "Why is corruption less harmful in some countries than in others?," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 797-810, December.
    2. repec:spr:annopr:v:243:y:2016:i:1:d:10.1007_s10479-014-1567-9 is not listed on IDEAS
    3. Keith Blackburn & Yuanyuan Wang, 2009. "Uncertainty, Entrepreneurship and the Organisation of Corruption," Centre for Growth and Business Cycle Research Discussion Paper Series 133, Economics, The Univeristy of Manchester.
    4. Keith Blackburn & Gareth Downing, 2015. "Deconcentration, Corruption and Economic Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 209, Economics, The Univeristy of Manchester.
    5. Celentani, Marco & Ganuza, Juan-Jose, 2002. "Corruption and competition in procurement," European Economic Review, Elsevier, vol. 46(7), pages 1273-1303, July.

    More about this item

    Keywords

    Competitive and organized corruption; institutional response;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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