Corruption and the Hadleyburg Effect

Universitat Pompeu Fabra, Department of Economics Working Paper No. 382

59 Pages Posted: 23 Jun 1999

See all articles by Marco Celentani

Marco Celentani

Universidad Carlos III de Madrid - Department of Economics

Juan-José Ganuza

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: April 1999

Abstract

We study the dynamics of corruption relying on two fundamental observations: (a) Given agents detected as corrupt are typically fired and replaced, the historical levels of corruption have an impact on current corruption through the distribution of corruption costs of old agents; (b) Institutions negatively affected by their agents' corrupt activities are likely to respond optimally to it thereby decreasing the payoff from being corrupt. We model this situation by considering agents who are supposed to monitor contractors' deliveries of a product or service and can manipulate their reports thus allowing the contractors to deliver lower quality in exchange for a bribe. Given the two generations of agents overlapping at any particular date, the administration sets an optimal level of quality in each period. We find that (i) A unique steady state level of corruption exists; (ii) Regardless of the initial distribution, apart from an initial period, equilibrium sequences are decreasing and converge to the steady state, a result we term the "Hadleyburg effect". We use these findings to study the dynamic response of corruption to both temporary and permanent shocks to the profitability of corruption and we find that the "Hadleyburg effect" has important positive and normative implications.

JEL Classification: H89

Suggested Citation

Celentani, Marco and Ganuza, Juan, Corruption and the Hadleyburg Effect (April 1999). Universitat Pompeu Fabra, Department of Economics Working Paper No. 382. Available at SSRN: https://ssrn.com/abstract=166832 or http://dx.doi.org/10.2139/ssrn.166832

Marco Celentani (Contact Author)

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91-624 9546 (Phone)
+34-91-624 9875 (Fax)

Juan Ganuza

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34-93) 542 27 19 (Phone)
(34-98) 542 17 46 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
139
Abstract Views
1,760
rank
205,313
PlumX Metrics