Abstract
It is generally considered that more competition might help curb
corruption, as rents, which motivate corrupt agreements, are decreasing
in the degree of competition. This paper proposes a framework
to analyze the relationship between corruption and competition. It
studies the optimal incentive scheme for potentially corrupt officials in
charge of inspecting firms that compete in the product market. Given
that bribe-taking is sometimes tolerated in equilibrium, for specific
values of the externality that motivated regulatory intervention, nonmonotonic
effects arise and more competition may lead to an increase
in corruption. Moreover, it is shown that in this context competition
is always welfare improving, even though it might lead to more
corruption.
corruption, as rents, which motivate corrupt agreements, are decreasing
in the degree of competition. This paper proposes a framework
to analyze the relationship between corruption and competition. It
studies the optimal incentive scheme for potentially corrupt officials in
charge of inspecting firms that compete in the product market. Given
that bribe-taking is sometimes tolerated in equilibrium, for specific
values of the externality that motivated regulatory intervention, nonmonotonic
effects arise and more competition may lead to an increase
in corruption. Moreover, it is shown that in this context competition
is always welfare improving, even though it might lead to more
corruption.
| Original language | English |
|---|---|
| Publisher | Edinburgh School of Economics Discussion Paper Series |
| Number of pages | 34 |
| Publication status | Published - 4 Apr 2005 |
Publication series
| Name | ESE Discussion Papers |
|---|---|
| No. | 131 |