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Competition, Corruption and Institutional Design

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  • Seung Han Yoo

    (Department of Economics, Korea University, Seoul, Republic of Korea)

Abstract

This paper offers a model to study competition and corruption with a principal-agent framework. We provide two key results on the optimal institutional design. First, in quality-only competition, corruption does no harm to the principal, but in quality-price competition, corruption negatively affects the principal. Second, with no corruption, quality-price competition is a superior institutional setting for the principal compared with quality-only competition when the principalis net benefit is sufficiently large, whereas with corruption, introducing price competition can lead to a worse outcome for the principal given the high price distortion involved.

Suggested Citation

  • Seung Han Yoo, 2014. "Competition, Corruption and Institutional Design," Discussion Paper Series 1406, Institute of Economic Research, Korea University.
    • Handle: RePEc:iek:wpaper:1406
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    More about this item

    Keywords

    Corruption; Optimal institutional design; Competition;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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