A model of bureaucracy and corruption

Shouyong Shi, Ted Temzelides

Research output: Contribution to journalReview articlepeer-review

13 Scopus citations

Abstract

We analyze bureaucracy and corruption in a market with decentralized exchange and "lemons." Exchange is modeled as a sequence of bilateral, random matches. Agents have private information about the quality of goods they produce and can supplement trade with socially inefficient bribes. Bureaucracy is modeled as a group of agents who enjoy centralized production and consumption. Transaction patterns between the bureaucracy and the private sector are fully endogenous. Centralized production and consumption in the bureaucracy give rise to low power incentives for the individual bureaucrats. As a result, private agents might bribe bureaucrats, whereas they do not bribe each other. An equilibrium with corruption and an equilibrium without corruption can coexist. We discuss some welfare implications of the model.

Original languageEnglish (US)
Pages (from-to)873-908
Number of pages36
JournalInternational Economic Review
Volume45
Issue number3
DOIs
StatePublished - Aug 1 2004

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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