Bribery, Hold-Up and Bureaucratic Structure

28 Pages Posted: 2 Jul 2018

See all articles by John Bennett

John Bennett

Brunel University London - 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)

Matthew D. Rablen

University of Sheffield - Department of Economics

Abstract

We analyze the provision of infrastructure by a foreign investor when the domestic bureaucracy is corrupt, but puts some weight on domestic welfare. The investor may pay a bribe in return for a higher provisional contract price. After the investment has been sunk, the bureaucracy may hold up the investor, using the threat of expropriation to demand a lower final price or another bribe. Depending on the level of care for domestic welfare, greater bureaucratic centralization may increase or decrease domestic welfare. Because of the threat of hold-up, bribery may result in greater domestic welfare than the honest benchmark does.

Keywords: bribery, hold-up, renegotiation, bureaucratic structure, centralized bureaucracy, decentralized bureaucracy

JEL Classification: D73, H11

Suggested Citation

Bennett, John and Rablen, Matthew D., Bribery, Hold-Up and Bureaucratic Structure. IZA Discussion Paper No. 11593. Available at SSRN: https://ssrn.com/abstract=3205880

John Bennett (Contact Author)

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom
+44 1895 816 201 (Phone)
+44 1895 203 384 (Fax)

Institute for the Study of Labor (IZA)

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

University of Wales, Swansea - School of Business and Economics ( email )

Singleton Park
Swansea, Wales SA2 8PP SA2 8PP
United Kingdom
+44 1792 295 168 (Phone)
+44 1792 295 872 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Matthew D. Rablen

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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