Corruption and Competition in the Presence of Inequality and Market Imperfections
Indranil Dutta and
No 123, Working papers from Centre for Development Economics, Delhi School of Economics
We analyze the relation between corruption, competition and inequality in a developing economy context where markets are imperfect and there is wealth inequality. We consider an economy where different types of households (efficient and inefficient) choose whether to enter the production sector or not. Due to information asymmetry and wealth inequality, the market fails to screen out the inefficient types. In addition to the imperfect screening in the credit market, the inefficient type's entry is further facilitated by corruption in the product market. We analyze the market equilibrium and look at some of the implications. We show that a rise in inequality can lead to an increase in corruption along with greater competition. By endogenising the types, we also show how in the presence of corruption, initial wealth inequality will distort the incentives of the poor and lead to trap-like situations.
Keywords: Corruption; Competition; Credit Market; Inequality; Screening. (search for similar items in EconPapers)
JEL-codes: D60 I20 R20 (search for similar items in EconPapers)
Pages: 46 pages
New Economics Papers: this item is included in nep-cwa, nep-dev, nep-geo and nep-ltv
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Working Paper: Corruption and Competition in the Presence of Inequality and Market Imperfections (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:cde:cdewps:123
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