Corruption & Bureaucratic Structure in a Developing Economy

43 Pages Posted: 21 Jul 2006

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)

Saul Estrin

London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: February 2006

Abstract

We address the impact of corruption in a developing economy in the context of an empirically relevant hold-up problem - when a foreign firm sinks an investment to provide infrastructure services. We focus on the structure of the economy's bureaucracy, which can be centralized or decentralized, and characterize the 'corruptibility' of bureaucrats in each case. Results are explained in terms of the noninternalization, under decentralization, of the 'bribe externality' and the 'price externality.' In welfare terms, decentralization is favoured, relatively speaking, if the tax system is less inefficient, funding is less tight, bureaucrats are less venal, or compensation for expropriation is ungenerous.

Keywords: Corruption, Bureaucratic Structure, Developing Economy

JEL Classification: D73, H11, H77

Suggested Citation

Bennett, John and Estrin, Saul, Corruption & Bureaucratic Structure in a Developing Economy (February 2006). William Davidson Institute Working Paper No. 825. Available at SSRN: https://ssrn.com/abstract=918095 or http://dx.doi.org/10.2139/ssrn.918095

John Bennett (Contact Author)

Brunel University London - Economics and Finance ( email )

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Institute for the Study of Labor (IZA)

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

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Centre for Economic Policy Research (CEPR)

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Saul Estrin

London School of Economics & Political Science (LSE) ( email )

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United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
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Germany

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