"An Economic Analysis of Corruption, with Special Application to the Chinese Economy" (in Japanese)

Fei Zhong
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Fei Zhong: Faculty of Economics, University of Tokyo

No CIRJE-J-29, CIRJE J-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Using Baumal's theoretical approach, where corruption is regarded as an unavoidable result of the rent-seeking activities spurred by some form of government intervention interfering with the market mechanism, the nature of corruption in the Chinese economy is explored systematically. Indigenous and economic reasons are shown to explain why corruption spreads extensively after the 1978 reforms, notwithstanding the theoretical level of the rents available under central-planning economy is larger than that under transitional economy. The competitions among local governments under the control of a fragmented centralized system are quite similar to the worst case of Shleifer-Vishny's agency structures where a number of agencies(clientelists) each supply a right over a complementary input in order to maximize rents for itself. Anti-corruption analysis suggests that one way to reduce the bribe is to raise the penalty on the bribe-giver (illegal producer), while reducing the penalty on the bribe-taker(bureaucracy or agent) and setting a suitable reward rate for reporting the illegal production. Although it seems unrealistic now, only competition for governmental positions or among different political parties can reduce the amount of corruption forcing governments to introduce less discretionary forms of regulations.

Pages: 42 pages
Date: 2000-07
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Persistent link: https://EconPapers.repec.org/RePEc:tky:jseres:2000cj29

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