Wheels and cycles: Suboptimality and volatility of corrupted economies

Stefano Bosi, David Desmarchelier and Thai Ha‐Huy
Authors registered in the RePEc Author Service: Thai Ha-Huy

International Journal of Economic Theory, 2022, vol. 18, issue 4, 440-460

Abstract: We consider a simple economy where production depends on labor supply and social capital. Networking increases the social capital (“greases the wheel”) but also the corruption level (“sands the wheel”). Corruption is a negative productive externality. We compare the market economy, where the negative externality is not taken into account by individuals, with a centralized economy, where the planner internalizes the negative effect. We highlight the possible existence of cycles in the market economy and optimal cycles in the planned economy. We compare the centralized and the decentralized solutions in the short and long run.

Date: 2022
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https://doi.org/10.1111/ijet.12323

Related works:
Working Paper: Wheels and cycles: Suboptimality and volatility of corrupted economies (2022)
Working Paper: Wheels an cycles: (sub)optimality and volatility of corrupted economies (2019)
Working Paper: Wheels and cycles: (sub)optimality and volatility of corrupted economies (2019)
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