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Corruption, the Ability to Pay, and the Costs of Breaking the Law

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Abstract

We propose a game-theoretic model of corruption to account for some crosscountry empirical regularities on the depth or prevalence of corruption, the variability of the bribe, officers’ salaries, and investment in anticorruption measures. Under standard conditions the model has a unique equilibrium in which the depth of corruption and the bribe are endogenously determined. The analysis centers on the further effects on these equilibrium values from changes in the “ability-to-pay” of the parties involved, the government’s efficiency to fight corruption, and the officer’s costs of breaking the law. A mere change in the officer’s salary, however, can be counterbalanced by a compensatory bribe; hence, the salary does not affect the depth of corruption.

Suggested Citation

  • Koutsougeras, Leonidas & Santos, Manuel S. & Xu, Fei, 2024. "Corruption, the Ability to Pay, and the Costs of Breaking the Law," Umeå Economic Studies 1026, Umeå University, Department of Economics, revised 24 Oct 2024.
    • Handle: RePEc:hhs:umnees:1026
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    1. Brunetti, Aymo & Weder, Beatrice, 2003. "A free press is bad news for corruption," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1801-1824, August.
    2. Jakob Svensson, 2003. "Who Must Pay Bribes and How Much? Evidence from a Cross Section of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 207-230.
    3. Hunt, Jennifer & Laszlo, Sonia, 2005. "Bribery: Who Pays, Who Refuses, What are the Payoffs?," CEPR Discussion Papers 5251, C.E.P.R. Discussion Papers.
    4. Abhijit V. Banerjee, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1289-1332.
    5. Claudio Ferraz & Frederico Finan, 2008. "Exposing Corrupt Politicians: The Effects of Brazil's Publicly Released Audits on Electoral Outcomes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 703-745.
    6. Charles Kenny, 2009. "Measuring Corruption in Infrastructure: Evidence from Transition and Developing Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 45(3), pages 314-332.
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    More about this item

    Keywords

    The depth of corruption; the bribe; anticorruption measures; officer’s salary; Nash equilibrium;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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