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The dynamics of corruption with the Ratchet effect

  • Choi, Jay Pil
  • Thum, Marcel

This paper provides a simple model of corruption dynamics with the ratchet effect. Corrupt officials have ex post the incentive to price discriminate entrepreneurs based on the entry decisions made in an earlier period. The inability of government officials to commit to future money demands induces entrepreneurs to delay entry in order to receive a discount in the permit price later. Even though the dynamic setting leaves the corrupt official with less extortion power, social welfare may decrease. We also explore the effect of the official's tenure stability on the extent of corruption. This allows us to identify circumstances under which the often observed practice of job rotation can help mitigate corruption.

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Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 04/01.

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Date of creation: 2001
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Handle: RePEc:zbw:tuddps:0401
Contact details of provider: Postal: 01062 Dresden
Phone: ++49 351 463 2196
Fax: ++49 351 463 7739
Web page: http://www.tu-dresden.de/wiwi/Email:


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  1. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-75, September.
  2. Dillen, Mats & Lundholm, Michael, 1996. "Dynamic income taxation, redistribution, and the ratchet effect," Journal of Public Economics, Elsevier, vol. 59(1), pages 69-93, January.
  3. Thum, Claudio & Thum, Marcel, 2001. " Repeated Interaction and the Public Provision of Private Goods," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 625-43, December.
  4. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  5. 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.
  6. Barry W. Ickes & Larry Samuelson, 1987. "Job Transfers and Incentives in Complex Organizations: Thwarting the Ratchet Effect," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 275-286, Summer.
  7. Malueg, David A & Solow, John L, 1989. "A Note on Welfare in the Durable-Goods Monopoly," Economica, London School of Economics and Political Science, vol. 56(224), pages 523-27, November.
  8. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
  9. Thierry Verdier & Daron Acemoglu, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, vol. 90(1), pages 194-211, March.
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