Corruption, Pricing of Public Services and Entrepreneurship in Economies with Leakage

Vivekananda Mukherjee, Siddhartha Mitra and Swapnendu Banerjee (Bandyopadhyay)

MPRA Paper from University Library of Munich, Germany

Abstract: The paper presents a theoretical model with bureaucratic corruption where bribe income can leak out of an economy. In such an economy given its perception about the extent of leakage the government sets the price of public services required for entrepreneurship by maximizing the welfare of the economy. We show that the corruption persists at the equilibrium. The government prices its services at a level higher than their unit cost of provision in high leakage economies. However, the price falls to unit cost level in more prosperous economies. We also find that the number of entrepreneurs starting business and the total income received as bribe are non-increasing functions of the prosperity level and the extent of leakage from the economy. The predictions of the model generate interesting policy implications: for example it clearly shows that in low prosperity economies the control of leakage may induce higher level of corruption, while the opposite is true in the high prosperity economies.

Keywords: Corruption; Leakage; Entrepreneurship; Pricing of Public Services (search for similar items in EconPapers)
JEL-codes: C72 D73 H57 O17 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-cse, nep-cwa, nep-ent, nep-nps and nep-pbe
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Related works:
Journal Article: Corruption, Pricing of Public Services, and Entrepreneurship in Economies with Leakage (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:49049

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