A Note on Licenses in the Presence of Corruption

Farmer Amy (), Fabio Mendez () and Samuel Andrew ()
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Farmer Amy: Economics, Loyola University Maryland, Baltimore, Maryland, USA
Samuel Andrew: Economics, Loyola University Maryland, Baltimore, Maryland, USA

Review of Law & Economics, 2018, vol. 14, issue 3, 14

Abstract: We study the effectiveness of licenses in environments with corruption. We expand the standard model so that bribery is feasible not only when licenses are granted but also when enforced or verified. This modification alters many prior results on bribery and licensing significantly. Specifically, we show that in some cases penalties for bribery at the license-granting stage complement penalties for bribery at the permit-enforcement stage. In other cases, they act as substitutes for each other. These results are especially important for often used regulatory policies in which licenses are used in conjunction with some form of subsequent license verification. Thus, our model suggests that studying the impact of bribery at the license-granting stage should not be conducted without simultaneously studying bribery at the permit verification stage.

Keywords: corruption; regulatory compliance; licenses (search for similar items in EconPapers)
JEL-codes: D73 K42 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/rle-2015-0056

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