A Game-Theoretic Analysis of Corruption in Bureaucracies

Era Dabla-Norris

No 2000/106, IMF Working Papers from International Monetary Fund

Abstract: This paper examines interactions between self-interested agents in a two-tier government hierarchy, consisting of a central authority and bureaucrats in a two-stage game, where the actions of agents affect private sector allocations. Conditions under which lower-tier corruption arises as an equilibrium characterization of the game are identified. If bureaucratic corruption sufficiently reduces the tax base, policies that deter corruption may be optimal. When monitoring is expensive or ineffective, lower-level corruption arises as equilibrium. Tax farming and the sale of offices can occur in these equilibria. In addition, strategic complementarities between bureaucrats may give rise to multiple equilibria.

Keywords: WP; economic activity; Corruption; hierarchies; multiple equilibria; monitoring effort; participation constraint; utility function; decision variable; dictator fall; Wages; Public sector wages; Europe (search for similar items in EconPapers)
Pages: 22
Date: 2000-06-01
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Citations: View citations in EconPapers (8)

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