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The Choice Between Market Failures and Corruption

The Choice Between Market Failures and Corruption Abstract Because government intervention transfers resources from one party to another, it creates room for corruption. As corruption often undermines the purpose of the intervention, governments will try to prevent it. They may create rents for bureaucrats, induce a misallocation of resources, and increase the size of the bureaucracy. Since preventing all corruption is excessively costly, second-best intervention may involve a certain fraction of bureaucrats accepting bribes. When corruption is harder to prevent, there may be both more bureaucrats and higher public-sector wages. Also, the optimal degree of government intervention may be nonmonotonic in the level of income. (JEL D23, H40 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

The Choice Between Market Failures and Corruption

Acemoglu, Daron; Verdier, Thierry
American Economic Review , Volume 91 (1) – Mar 1, 2000
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Publisher
American Economic Association
Copyright
Copyright © 2000 by the American Economic Association
Subject
Articles
ISSN
0002-8282
DOI
10.1257/aer.90.1.194
Publisher site
See Article on Publisher Site

Abstract

Abstract Because government intervention transfers resources from one party to another, it creates room for corruption. As corruption often undermines the purpose of the intervention, governments will try to prevent it. They may create rents for bureaucrats, induce a misallocation of resources, and increase the size of the bureaucracy. Since preventing all corruption is excessively costly, second-best intervention may involve a certain fraction of bureaucrats accepting bribes. When corruption is harder to prevent, there may be both more bureaucrats and higher public-sector wages. Also, the optimal degree of government intervention may be nonmonotonic in the level of income. (JEL D23, H40 )

Journal

American Economic Review – American Economic Association

Published: Mar 1, 2000

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