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American Economic Review: Vol. 90 No. 1 (March 2000)
AER Volume. 90, Issue 1 | 
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The Choice between Market Failures and Corruption
Article Citation
Acemoglu, Daron, and
Thierry Verdier. 2000. "The Choice between Market Failures and Corruption."
American Economic Review,
90(1): 194-211.
DOI: 10.1257/aer.90.1.194
DOI: 10.1257/aer.90.1.194
Abstract
Because government intervention transfers resources from one party to another, it creates room for corruption. As corruption often undermines the purpose of the intervention, governments will try to prevent it. They may create rents for bureaucrats, induce a misallocation of resources, and increase the size of the bureaucracy. Since preventing all corruption is excessively costly, second-best intervention may involve a certain fraction of bureaucrats accepting bribes. When corruption is harder to prevent, there may be both more bureaucrats and higher public-sector wages. Also, the optimal degree of government intervention may be nonmonotonic in the level of income.
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Authors
Acemoglu, Daron (MIT)
Verdier, Thierry (DELTA-ENS and CERAS)
Verdier, Thierry (DELTA-ENS and CERAS)
JEL Classifications
O17: Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
D73: Bureaucracy; Administrative Processes in Public Organizations; Corruption
D73: Bureaucracy; Administrative Processes in Public Organizations; Corruption
