Optimal Extortion and Political Risk Insurance
Frederic Koessler and
Ariane Lambert-Mogiliansky
Working Papers from HAL
Abstract:
We study the problem faced by firms that invest in a foreign country characterized by weak governance. Our focus is on extortion relying on the threat of expropriation and bureaucratic harassment. The bureaucrat's power is characterized by looking at a general extortion mechanism adapted from Myerson's (1981) optimal auction theory. This characterization is used to study the determinants of the quality of governance and whether and how political risk insurance of foreign direct investments improve upon it. We find that it does not always improve upon all governance indicators. It always decreases the bureaucrat's total revenue from corruption, but it may also increase the risk of expropriation and the extortion bribes paid by some firms.
Keywords: Auctions; Corruption; Expropriation; Extortion; Governance; Harassment; Mechanism Design; Political Constraints; Political Risk Insurance (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-ias
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00672963v1
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://shs.hal.science/halshs-00672963v1/document (application/pdf)
Related works:
Working Paper: Optimal Extortion and Political Risk Insurance (2012) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-00672963
Access Statistics for this paper
More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().