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The dynamics of corruption with the ratchet effect

Authors
Journal
Journal of Public Economics
0047-2727
Publisher
Elsevier
Publication Date
Volume
87
Identifiers
DOI: 10.1016/s0047-2727(01)00149-9
Keywords
  • Corruption Dynamics
  • Ratchet Effect
  • Ex Postopportunism
  • Dynamic Consistency
Disciplines
  • Political Science

Abstract

Abstract This paper provides a simple model of corruption dynamics with the ratchet effect. Corrupt officials have ex post the incentive to price discriminate entrepreneurs based on the entry decisions made in an earlier period. The inability of government officials to commit to future money demands induces entrepreneurs to delay entry in order to receive a discount in the permit price later. Even though the dynamic setting leaves the corrupt official with less extortion power, social welfare may decrease. We also explore the effect of the official’s tenure stability on the extent of corruption. This allows us to identify circumstances under which the often observed practice of job rotation can help mitigate corruption.

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