Corruption, Extortion, and the Boundaries of the Law

Svetlana Andrianova () and Nicolas Melissas ()

No 605, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: We consider a set-up in which a principal must decide whether or not to legalise a socially undesirable activity. The law is enforced by a monitor who may be bribed to conceal evidence of the offence and who may also engage in extortionary practices. The principal only declares the activity illegal if the activity if "very harmful" and if the private benefit (received by the agent if she breaks the law) is "high". We present comparative static results and highlight policy implications.

Keywords: Moral Hazard; Collusion; Non-contractive Output; Rewards and Punishments (search for similar items in EconPapers)
JEL-codes: D82 L22 K4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law and nep-reg
Date: 2006-09
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http://ftp.itam.mx/pub/academico/inves/melissas/06-05.pdf First version, 1996 (application/pdf)

Related works:
Journal Article: Corruption, Extortion, and the Boundaries of the Law (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:cie:wpaper:0605

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