Wheels an cycles: (sub)optimality and volatility of corrupted economies

Stefano Bosi, David Desmarchelier and Thai Ha-Huy
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Stefano Bosi: Université Paris-Saclay, EPEE

No 19-04, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

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 in 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 one. We compare the centralized and the decentralized solutions in the short and in the long run.

Pages: 21 pages
Date: 2019
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Related works:
Journal Article: Wheels and cycles: Suboptimality and volatility of corrupted economies (2022)
Working Paper: Wheels and cycles: Suboptimality and volatility of corrupted economies (2022)
Working Paper: Wheels and cycles: (sub)optimality and volatility of corrupted economies (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eve:wpaper:19-04

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