"Corruption" Andrei Schleifer and Robert Vishny. August Andrei Schleifer and Robert Vishny () Corruption August / 11

Transcription

1 "Corruption" Andrei Schleifer and Robert Vishny August 1993 Andrei Schleifer and Robert Vishny () Corruption August / 11

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4 Overview Previous articles discuss corruption as a Principal-Agent problem This paper focusses on the consequences of corruption for resource allocation What are the implications of the way corruption is organized? Why does corruption have worse consequences than taxation? De nition: the sale of government property for personal gain. Andrei Schleifer and Robert Vishny () Corruption August / 11

5 Basic Model One government produced good (e.g. passport, import license) with price p and demand curve D(p) Sold by o cial who can restrict the quantity sold No restriction or punishment from above No cost to o cial to producing good What is the marginal cost to the o cial?,! for corruption without theft it is p,! for corruption with theft it is 0 Andrei Schleifer and Robert Vishny () Corruption August / 11

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8 Observations: why corruption spreads Corruption without theft is equivalent to optimal commodity taxation, except that the revenue is kept by the o cial,! if this is understood, then could pay them this way,! but then people willing to be corrupt are more likely to take the job Corruption with theft spreads due to competition amongst buyers,! if one buyer of a permit reduces his costs through bribery, his rivals must do the same to compete,! not true for corruption without theft Andrei Schleifer and Robert Vishny () Corruption August / 11

9 The Industrial Organization of Corruption Suppose now buyers need several complementary goods Alternative ways of organizing government agencies (1) monopolist agency (e.g. communist Russia) (2) independent agencies (e.g. India, post-1991 Russia, Africa) (3) each good supplied by at least 2 agencies Andrei Schleifer and Robert Vishny () Corruption August / 11

10 Monopolist Agency o ering complementary goods Two bribe prices p 1 and p 2 and quantities x 1 and x 2 Marginal costs C 1 and C 2 Monopolist (benchmark) would solve,! FOCs are max x 1,x 2 R (x 1, x 2 ) C 1 x 1 C 2 x 2 MR 1 + MR 2 dx 2 dx 1 = C 1 MR 1 dx 1 dx 2 + MR 2 = C 2 If the two goods are complements then dx 2 dx 1 MR 1 < C 1 and MR 2 < C 2 > 0 and so,! monopolist agency keeps the bribe on each good down to expand the demand for the other Andrei Schleifer and Robert Vishny () Corruption August / 11

11 Two Independent Agencies (Oligopoly) Each agency takes the other s output as given: dx 2 dx 1 = 0,! hence MR i = C i ) bribe is higher and output lower Also implies a lower aggregate level of bribes By acting independently, the two agencies hurt each other and the buyers,! worse than monopoly Andrei Schleifer and Robert Vishny () Corruption August / 11

12 Each good supplied by more than one independent agency Competition drives bribes down to zero,! analogous to tax competition amongst provinces Policy implication: create competition in the provision of public goods Andrei Schleifer and Robert Vishny () Corruption August / 11

13 Corruption and Secrecy Why is corruption di erent from taxation in terms of its e ect on resource allocation?,! it is illegal and must be kept secret Taking bribes without being detected is easier for some goods than others,! o cials may induce substitution into goods where detection is harder,! this may be very distortionary and socially costly Andrei Schleifer and Robert Vishny () Corruption August / 11

14 Example: Bottle making factory in Mozambique Decision to invest in new technology, nanced by outside donors Buying a unique (advanced) technology o ers an opportunity for corruption,! seller may be happy to overcharge and o er kick-backs With a generic machines, donors require consideration of several competing o ers,! little opportunity for such corruption Andrei Schleifer and Robert Vishny () Corruption August / 11

15 Implications Explains import of advanced rather than appropriate technology by LDC governments,! infrastructure and defence, vs. education and health Also, the need for secrecy causes o cials to limit entry and restrict information,! less innovation Andrei Schleifer and Robert Vishny () Corruption August / 11