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Wheels and cycles: (sub)optimality and volatility of corrupted economies

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  • Stefano BOSI
  • David DESMARCHELIER
  • Thai HA-HUY

Abstract

We consider a simple economy where production depends on labor supply and social capital. Networking increases the social capital ("greases the wheel") but also the corruption level ("sands the wheel"). Corruption is a negative productive externality. We compare the market economy, where the negative externality is not taken in account by individuals, with a centralized economy, where the planner internalizes the negative effect. We highlight the possible existence of cycles in the market economy and optimal cycles in the planned one. We compare the centralized and the decentralized solutions in the short and in the long run.

Suggested Citation

  • Stefano BOSI & David DESMARCHELIER & Thai HA-HUY, 2019. "Wheels and cycles: (sub)optimality and volatility of corrupted economies," Working Papers of BETA 2019-25, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2019-25
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    References listed on IDEAS

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    More about this item

    Keywords

    Corruption; optimal cycles; Ramsey model.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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