Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/33906
Authors: 
Bennett, John
Estrin, Saul
Year of Publication: 
2006
Series/Report no.: 
IZA Discussion Papers 2156
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 non-internalization, 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.
Subjects: 
corruption
bureaucratic structure
developing economy
JEL: 
D73
H11
H77
Document Type: 
Working Paper

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