A Game-Theoretic Analysis of Corruption in Bureaucracies
June 1, 2000
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Summary
This paper examines interactions between self-interested agents in a two-tier government hierarchy, consisting of a central authority and bureaucrats in a two-stage game, where the actions of agents affect private sector allocations. Conditions under which lower-tier corruption arises as an equilibrium characterization of the game are identified. If bureaucratic corruption sufficiently reduces the tax base, policies that deter corruption may be optimal. When monitoring is expensive or ineffective, lower-level corruption arises as equilibrium. Tax farming and the sale of offices can occur in these equilibria. In addition, strategic complementarities between bureaucrats may give rise to multiple equilibria.
Subject: Corruption, Crime, Labor, Public sector wages, Tax incentives, Wages
Keywords: Corruption, decision variable, dictator fall, economic activity, Europe, hierarchies, monitoring effort, multiple equilibria, participation constraint, Public sector wages, utility function, Wages, WP
Pages:
22
Volume:
2000
DOI:
Issue:
106
Series:
Working Paper No. 2000/106
Stock No:
WPIEA1062000
ISBN:
9781451852882
ISSN:
1018-5941
