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 briberâs market affect the equilibrium amount of corruption? Theoretically the effect of competition on corruption is ambiguous. Less competition means ï¬rms 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 bureaucratâs incentive scheme. Higher rents also imply that the public would be keener to rewrite the bureaucratâs 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 1970âs. When compared to other, non-oilproducing countries in the region, like Togo, Nigeria provides what is almost a natural
American Economic Review – American Economic Association
Published: Sep 1, 1999
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