Monopoly Rents, Institutions, and Bribery

49 Pages Posted: 19 Jan 2018 Last revised: 23 Jul 2018

See all articles by Boliang Zhu

Boliang Zhu

Pennsylvania State University - Department of Political Science

Qing Deng

Pennsylvania State University

Date Written: July 12, 2018

Abstract

Why do some firms pay more bribes than others? We extend the literature by examining the role of one crucial, but overlooked industry characteristic---fixed asset intensity---in shaping firms' bribe payments. High fixed asset intensity creates natural entry barriers, thereby leading to market concentration and opportunities for monopoly rent extraction. High rents, in turn, increase the value of government officials' ``control rights'' and thus their incentive to engage in predatory behavior. Firms in fixed-asset intensive industries therefore have strong incentives to pay bribes in exchange for de facto property rights. We further posit that strong legal institutions weaken this quid pro quo by providing security for property rights and increasing the risk for government officials' behaving corruptly. We find empirical support for our arguments based on data from a large firm survey in China. Our findings have important implications for governance and industrial regulations in developing countries.

Keywords: Fixed Asset Intensity, Market Concentration, Monopoly Rents, Corruption, Legal Institutions, China

Suggested Citation

Zhu, Boliang and Deng, Qing, Monopoly Rents, Institutions, and Bribery (July 12, 2018). Available at SSRN: https://ssrn.com/abstract=3100936 or http://dx.doi.org/10.2139/ssrn.3100936

Boliang Zhu (Contact Author)

Pennsylvania State University - Department of Political Science ( email )

University Park, State College, PA 16801
United States

Qing Deng

Pennsylvania State University ( email )

Department of Political Science
University Park, PA 16802
United States

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