Corruption, Pricing of Public Services and Entrepreneurship in Economies with Leakage

16 Pages Posted: 11 Aug 2011 Last revised: 25 Jun 2013

See all articles by Vivekananda Mukherjee

Vivekananda Mukherjee

Jadavpur University

Siddhartha Mitra

Jadavpur University - Department of Economics

Swapnendu Banerjee

Jadavpur University, Department of Economics; Jadavpur University, Calcutta

Date Written: June 25, 2013

Abstract

The paper presents a theoretical model with bureaucratic corruption where bribe income can leak out of an economy. In such an economy given its perception about the extent of leakage the government sets the price of public services required for entrepreneurship by maximizing the welfare of the economy. We show that the corruption persists at the equilibrium. The government prices its services at a level higher than their unit cost of provision in high leakage economies. However, the price falls to unit cost level in more prosperous economies. We also find that the number of entrepreneurs starting business and the total income received as bribe are non-increasing functions of the prosperity level and the extent of leakage from the economy. The predictions of the model generate interesting policy implications: for example it clearly shows that in low prosperity economies the control of leakage may induce higher level of corruption, while the opposite is true in the high prosperity economies.

Keywords: Corruption, Leakage, Entrepreneurship, Pricing of Public Services

JEL Classification: D73, C72, H 57, O17

Suggested Citation

Mukherjee, Vivekananda and Mitra, Siddhartha and Banerjee, Swapnendu, Corruption, Pricing of Public Services and Entrepreneurship in Economies with Leakage (June 25, 2013). Available at SSRN: https://ssrn.com/abstract=1908150 or http://dx.doi.org/10.2139/ssrn.1908150

Vivekananda Mukherjee

Jadavpur University ( email )

188, Raja S.C. Mallick Rd, Kolkata 700032
Calcutta, West Bengal 700032
India

Siddhartha Mitra

Jadavpur University - Department of Economics ( email )

Kolkata, 700032
India

HOME PAGE: http://www.jaduniv.edu.in/profile.php?uid=977

Swapnendu Banerjee (Contact Author)

Jadavpur University, Department of Economics ( email )

Kolkata, 700032
India
91-9330606340 (Phone)

Jadavpur University, Calcutta ( email )

Department of Economics
Calcutta 700032, West Bengal 700032
India
91-9330606340 (Phone)

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