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Corruption & Bureaucratic Structure in a Developing EconomyJohn BennettBrunel University - Economics and Finance; Institute for the Study of Labor (IZA); University of Wales, Swansea - School of Business and Economics; Centre for Economic Policy Research (CEPR) Saul EstrinLondon School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA) February 2006 William Davidson Institute Working Paper No. 825 Abstract: We address the impact of corruption in a developing economy in the context of an empirically relevant hold-up problem - when a foreign firm sinks an investment to provide infrastructure services. We focus on the structure of the economy's bureaucracy, which can be centralized or decentralized, and characterize the 'corruptibility' of bureaucrats in each case. Results are explained in terms of the noninternalization, under decentralization, of the 'bribe externality' and the 'price externality.' In welfare terms, decentralization is favoured, relatively speaking, if the tax system is less inefficient, funding is less tight, bureaucrats are less venal, or compensation for expropriation is ungenerous.
Number of Pages in PDF File: 43 Keywords: Corruption, Bureaucratic Structure, Developing Economy JEL Classification: D73, H11, H77 working papers seriesDate posted: July 21, 2006Suggested CitationContact Information
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