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Corruption and Bureaucratic Structure in a Developing Economy

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  • JOhn Bennett
  • Saul Estrin

Abstract

We address the impact of corruption in a developing economy in the context of an empirically relevant hold-up problem - when a foreign firm sinks an investment to provide infrastructure services. We focus on the structure of the economy???s bureaucracy, which can be centralized or decentralized, and characterize the ???corruptibility??? of bureaucrats in each case. Results are explained in terms of the noninternalization, under decentralization, of the ???bribe externality??? and the ???price externality.??? In welfare terms, decentralization is favoured, relatively speaking, if the tax system is less inefficient, funding is less tight, bureaucrats are less venal, or compensation for expropriation is ungenerous.

Suggested Citation

  • JOhn Bennett & Saul Estrin, 2006. "Corruption and Bureaucratic Structure in a Developing Economy," William Davidson Institute Working Papers Series 825, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2006-825
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    References listed on IDEAS

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    Cited by:

    1. John Bennett & Matthew D. Rablen, 2021. "Bribery, hold‐up, and bureaucratic structure," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 880-903, July.
    2. Lessmann, Christian & Markwardt, Gunther, 2010. "One Size Fits All? Decentralization, Corruption, and the Monitoring of Bureaucrats," World Development, Elsevier, vol. 38(4), pages 631-646, April.

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    More about this item

    Keywords

    Corruption; Bureaucratic Structure; Developing Economy;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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