Slavery, Corruption, and Institutions

30 Pages Posted: 27 Nov 2019

See all articles by Michael Rauscher

Michael Rauscher

University of Rostock - Department of Economics; University of Rostock - Faculty of Business Administration, Economics and Social Sciences; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Bianca Willert

University of Rostock

Date Written: 2019

Abstract

We develop a model where firms profit from coercing workers into employment under conditions violating national law and international conventions and where bureaucrats benefit from accepting bribes from detected perpetrators. Firms and bureaucrats are heterogeneous. Employers differ in their unscrupulousness regarding the use of slave labour whereas bureaucrats have differing intrinsic motivations to behave honestly. Moreover, there is a socially determined warm-glow effect: honest bureaucrats feel better if their colleagues are honest too. The determination of bribes is modelled via Nash bargaining between the firm and the corrupt civil servant. It is shown that multiple equilibria and hysteresis are possible. Depending on history, an economy may be trapped in a locally stable high-corruption, high-slavery equilibrium and major changes in government policies may be necessary to move the economy out of this equilibrium. Moreover, we show that trade bans that are effective in reducing slavery in the export industry tend to raise slavery in the remainder of the economy. It is possible that this leakage effect dominates the reduction of slavery in the export sector.

Keywords: coerced labour, modern slavery, corruption, social norms, trade-related process standards

JEL Classification: D730, F160, J470

Suggested Citation

Rauscher, Michael and Willert, Bianca, Slavery, Corruption, and Institutions (2019). CESifo Working Paper No. 7944, Available at SSRN: https://ssrn.com/abstract=3490408

Michael Rauscher (Contact Author)

University of Rostock - Department of Economics ( email )

Ulmenstr. 69
Rostock, 18057
Germany

HOME PAGE: http://www.wiwi.uni-rostock.de/vwl

University of Rostock - Faculty of Business Administration, Economics and Social Sciences ( email )

Ulmenstr. 69
Rostock, 18057
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Bianca Willert

University of Rostock ( email )

Postfach 10 08 88
Rostock, 18055
Germany

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