Competition, Corruption and Institutional Design

Seung Han Yoo

No 1406, Discussion Paper Series from Institute of Economic Research, Korea University

Abstract: This paper offers a model to study competition and corruption with a principal-agent framework. We provide two key results on the optimal institutional design. First, in quality-only competition, corruption does no harm to the principal, but in quality-price competition, corruption negatively affects the principal. Second, with no corruption, quality-price competition is a superior institutional setting for the principal compared with quality-only competition when the principalis net benefit is sufficiently large, whereas with corruption, introducing price competition can lead to a worse outcome for the principal given the high price distortion involved.

Keywords: Corruption; Optimal institutional design; Competition (search for similar items in EconPapers)
JEL-codes: C73 D73 O17 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:iek:wpaper:1406

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