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A Note on Licenses in the Presence of Corruption

Author

Listed:
  • Farmer Amy

    (Economics, Loyola University Maryland, Baltimore, Maryland, USA)

  • Méndez Fabio

    (Economics, University of Arkansas, Fayetteville, Arkansas, USA)

  • Samuel Andrew

    (Economics, Loyola University Maryland, Baltimore, Maryland, USA)

Abstract

We study the effectiveness of licenses in environments with corruption. We expand the standard model so that bribery is feasible not only when licenses are granted but also when enforced or verified. This modification alters many prior results on bribery and licensing significantly. Specifically, we show that in some cases penalties for bribery at the license-granting stage complement penalties for bribery at the permit-enforcement stage. In other cases, they act as substitutes for each other. These results are especially important for often used regulatory policies in which licenses are used in conjunction with some form of subsequent license verification. Thus, our model suggests that studying the impact of bribery at the license-granting stage should not be conducted without simultaneously studying bribery at the permit verification stage.

Suggested Citation

  • Farmer Amy & Méndez Fabio & Samuel Andrew, 2018. "A Note on Licenses in the Presence of Corruption," Review of Law & Economics, De Gruyter, vol. 14(3), pages 1-14, November.
    • Handle: RePEc:bpj:rlecon:v:14:y:2018:i:3:p:14:n:3
    DOI: 10.1515/rle-2015-0056
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    corruption; regulatory compliance; licenses;
    All these keywords.

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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