Rents, Competition, and Corruption

Rents, Competition, and Corruption By ALBERTO ADES AND RAFAEL DI TELLA* reapply in case of being asked a bribe will bid down the equilibrium amount of corruption.3 In this paper we restrict attention to the other side of this problem, namely how does the industrial organization of the briber’s market affect the equilibrium amount of corruption? Theoretically the effect of competition on corruption is ambiguous. Less competition means firms enjoy higher rents, so that bureaucrats with control rights over them, such as tax inspectors or regulators, have higher incentives to engage in malfeasant behavior. The point is related to the more general idea that rents may foster slack.4 But this ignores the interaction of competition with the bureaucrat’s incentive scheme. Higher rents also imply that the public would be keener to rewrite the bureaucrat’s contract and to spend resources trying to control him. Since the equilibrium amount of bribes is determined by this contract, it is possible that less competition implies less corruption. Examples of a positive connection between rents and corruption abound, however. Consider, for example, the case of Nigeria in the 1970’s. When compared to other, non-oilproducing countries in the region, like Togo, Nigeria provides what is almost a natural http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Rents, Competition, and Corruption

American Economic Review, Volume 89 (4) – Sep 1, 1999

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Publisher
American Economic Association
Copyright
Copyright © 1999 by the American Economic Association
Subject
Shorter Papers
ISSN
0002-8282
D.O.I.
10.1257/aer.89.4.982
Publisher site
See Article on Publisher Site

Abstract

By ALBERTO ADES AND RAFAEL DI TELLA* reapply in case of being asked a bribe will bid down the equilibrium amount of corruption.3 In this paper we restrict attention to the other side of this problem, namely how does the industrial organization of the briber’s market affect the equilibrium amount of corruption? Theoretically the effect of competition on corruption is ambiguous. Less competition means firms enjoy higher rents, so that bureaucrats with control rights over them, such as tax inspectors or regulators, have higher incentives to engage in malfeasant behavior. The point is related to the more general idea that rents may foster slack.4 But this ignores the interaction of competition with the bureaucrat’s incentive scheme. Higher rents also imply that the public would be keener to rewrite the bureaucrat’s contract and to spend resources trying to control him. Since the equilibrium amount of bribes is determined by this contract, it is possible that less competition implies less corruption. Examples of a positive connection between rents and corruption abound, however. Consider, for example, the case of Nigeria in the 1970’s. When compared to other, non-oilproducing countries in the region, like Togo, Nigeria provides what is almost a natural

Journal

American Economic ReviewAmerican Economic Association

Published: Sep 1, 1999

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