Abstract
To overcome market failures society creates common laws that stimulate or penalize individual actions, the enforcement of which depends on the actions of public authorities who may be susceptible to corruption. We model this behaviour for an autocracy versus a democracy, using a microeconomic framework. We assume that in an autocracy rulers have a monopoly over the bribes market, whereas in a democracy conflicting groups compete in the bribes market. The models constructed produce results that are compatible with the well-known stylized facts, namely that (1) in a democracy the level of corruption is lower than in an autocracy, although still positive, that (2) in environments where the level of human capital is higher, regimes are closer to democracies and the level of corruption is lower, and that (3) the level of corruption is higher in more regulated economies.
Highlights
Researchers have been interested in the determinants and effects of corruption for quite some time – Aidt (2003), Jain (2001), Rose-Ackerman (1999), Bardhan, (1997), and Ades and Di Tella (1997) provide excellent and comprehensive surveys on the subject
Given that natural resources are a factor in production, by imposing restrictions on their use governments create economic incentives for producers to overcome these restrictions
The existence of economies of scale in the production process means that the number of competitors has to be limited (n≤10) so that technological inefficiency is not superimposed on the gains created by the existence of competition. Another important issue that our model enables us to analyse is whether, as an alternative to maintaining a fixed level for the use of the natural resource, it would be in society’s interests for the government to set a price for the use of the natural resource and to use this money to compensate for the environmental damage caused, whilst making the producers responsible for setting the criteria for the amount used
Summary
Researchers have been interested in the determinants and effects of corruption for quite some time – Aidt (2003), Jain (2001), Rose-Ackerman (1999), Bardhan, (1997), and Ades and Di Tella (1997) provide excellent and comprehensive surveys on the subject. Given that natural resources are a factor in production, by imposing restrictions on their use governments create economic incentives for producers to overcome these restrictions. A government strategy which maximizes the potential for corruption involves imposing very strict limits on the use of natural resources and, in addition, a concentrated market. In this way, the value of a natural resource (its shadow price) is enhanced and comes to represent a greater gain when the imposed limits are overcome. Legislators have incentives to deviate from the goal of efficiency and produce laws that maximize the gains that can be expected from bribes We model this behaviour for an autocracy versus a democracy, using a microeconomic framework.
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