the public private wage differential in a poor urban economy the occupational structure of wages is generally more compressed in high than in low income countries the role of non market forces in determining the structure of wages is of interest for reasons of allocative efficiency as well as for distributional concerns this paper considers how wage differentials may be generated between the public and private sectors of a developing economy data from a 1971 household survey of the tanzanian urban wage labor force are used to determine the pattern of wage differences across employer groups after standardizing by worker characteristics public sector employees are found to have earned a substantial wage premium over workers employed in the private sector the non market character of these differentials is examined in light of a number of hypotheses on public sector wage determination

pre emptive corruption hold up and repeated interactions this paper analyses repeated interactions between a firm and an inspector who monitors regulatory compliance the firm may offer a bribe to pre empt the inspection corruption is unfeasible in the one shot game because of inspector hold up in an infinitely repeated game we characterize the set of bribes that can be sustained as equilibrium paths using the trigger strategy in this model the most likely bribe givers are not the firms that benefit the most from the illegal behaviour furthermore strengthening anti corruption policies has ambiguous welfare effects because it improves compliance only among a subset of firms and increases monitoring effort

mutual supervision in preshipment inspection programs abstract preshipment inspection psi programmes are implemented in many developing countries to assist governments in the collection of revenue at their borders these programs consist of the delegation of the inspection of imports to a private firm to study these psi programmes we develop a hierarchical agency model in which the government authority can rely on two supervisors namely the private inspection firm and the customs administration to control importers declarations the government s optimal contract is fully characterized we devote some attention to the inspection policy and its comparative statics properties in particular we identify the situations in which psi programmes are revenue enhancing we also discuss the reconciliation policy i e what to do in case of conflicting inspection reports by the inspection firm and the customs administration in the optimal mechanism mutual supervision between the inspection firm and the customs administration is used to provide adequate incentives to all parties

setting standards for credible compliance and law enforcement in this paper we examine the setting of optimal legal standards to simultaneously induce parties to invest in care and to motivate law enforcers to detect violators of the law the strategic interaction between care providers and law enforcers determines the degree of efficiency achieved by the standards our principal finding is that some divergence between the marginal benefits and marginal costs of providing care is required to control enforcement costs further the setting of standards may effectively substitute for the setting of fines when penalties for violation are fixed in particular maximal fines may be welfare reducing when standards are set optimally nous considerons dans cet article la determination en information incomplete de normes legales optimales pour a la fois inciter les citoyens a faire preuve de diligence prevention et motiver les agents de la paix a veiller au respect des lois l interaction strategique entre citoyens et agents de la paix determine l efficacite des normes choisies notre resultat principal est a l effet qu un ecart entre benefices marginaux et couts marginaux de la diligence est necessaire afin de reduire les couts d application des lois de plus les normes peuvent etre un substitut aux amendes lorsque les penalites pour infraction sont fixes des amendes maximales peuvent en particulier etre contre indiquees lorsque les normes sont optimalement determinees

corruption and government size a disaggregated analysis using annual state level data over 1983 1987 this paper examines the effect of government size on corruption by public officials by including both demand and supply side incentives for engaging in corrupt practices our objectives are twofold first we assess the relationship between the incidence of corruption and overall measures of the size of the federal government and the state local sector in each state second we explore what kinds of government activities are more likely to be successful in deterring abuse of public office our results are generally supportive of becker s crime and punishment model regarding the primary focus of the paper our results show that government size in particular spending by state governments does indeed have a strong positive influence on corruption

the choice between market failures and corruption because government intervention transfers resources from one party to another it creates room for corruption as corruption often undermines the purpose of the intervention governments will try to prevent it they may create rents for bureaucrats induce a misallocation of resources and increase the size of the bureaucracy since preventing all corruption is excessively costly second best intervention may involve a certain fraction of bureaucrats accepting bribes when corruption is harder to prevent there may be both more bureaucrats and higher public sector wages also the optimal degree of government intervention may be nonmonotonic in the level of income

is the efficiency wage efficient the social norm and organizational corruption the effectiveness of efficiency wage incentives is often jeopardized by perverse organizational corruption we model organizational corruption as a phenomenon of social interaction and relate the substantial psychological role characterizing the social norm to the corruption problem we find that if the status quo bribery rate within the firm is high social norms can no longer serve as a sufficient sanction against a corrupt supervisor pandemic organizational corruption tends to generate a critical mass effect the snowball effect which intensifies the corruption effect this intensified effect due to the snowballing character of social norms may more than offset the usual incentive effect of wages resulting in more widespread shirking in the firm jel classification d82 j41

dynamic reform of public institutions a model of motivated agents and collective reputation abstract state capacity is optimized when public institutions are staffed by individuals with public service motivation however when motivated agents value the collective reputation of their place of employment steady state equilibria with both high and low aggregate motivation reputation in the mission oriented sector exist reforming a low motivation institution requires a non monotonic wage path since the effect of higher wages on motivation is negative for a high reputation institution but positive for a low reputation institution a transition to a high reputation steady state requires an initial wage increase to crowd motivated workers in followed by a wage decrease to crowd non motivated workers out

the role of wages and auditing during a crackdown on corruption in the city of buenos aires abstract we study the prices paid for basic inputs during a crackdown on corruption in the public hospitals of the city of buenos aires argentina during 1996 97 we find a well defined negative effect on the measures used to capture corruption prices paid by hospitals for basic homogeneous inputs decrease by 15 percent during the first 9 months of the crackdown after this period prices increase but they are still 10 percent lower than those prevailing before the crackdown relative to the precrackdown period higher wages play no role in inducing lower input prices when audit intensity can be expected to be maximal during the first phase of the crackdown but have a negative and well defined effect when audit intensity takes intermediate levels the last phase of the crackdown controlling for fixed effects we find that the wage elasticity of input prices exceeds 20 these results are consistent with the standard model of bribes of gary becker and george stigler

bureaucratic capacity delegation and political reform thecentraltensionmotivatingcontemporarytheories of delegation from politicians to bureaucrats lies in the potential conflict between the value of bureaucratic expertise on one hand and the desire for political control on the other this tension is well known and has been debated at least since weber s classic work on bureaucracy modern bureaucracies are staffed with individuals who by virtue of rational bureaucratic organization are highly skilled policy experts who in principle should be able to help less knowledgeable politicians achieve their goals however the very skills and expertise that bureaucrats enjoy create the possibility that bureaucrats will usurp the rightful role of politicians in policymaking processes because the way this tension is resolved determines the ultimate compatibility of democracy and bureaucracy existing theories of delegation typically focus on understanding how and to what extent politicians can resolve it 1 in many contexts particularly developing democracies bureaucracy does not fit the weberian characteristics that are assumed in the existing delegation literature the bureaucracies may be staffed with individuals who lack the personal capacity to execute orders effectively the organizational structure may lead to breakdowns within bureaucratic hierarchies making it difficult for senior administrators to control their subordinates departments and ministries may lack basic budgets and resources to undertake implementation actions they may suffer from incentives for

corruption and the role of information several studies have explored how certain economic and cultural variables affect a country s corruption level this study extends previous research by not only considering these variables but also taking into account the impact that information and communication technology can have on corruption the results indicate that the greater the access to information the lower the corruption levels therefore bridging the digital disparity across countries can also serve to lessen national corruption levels

the culture of corruption tax evasion and economic growth this study uses a dynamic general equilibrium model to quantify the effects of corruption and tax evasion on fiscal policy and economic growth the model is calibrated to match estimates of tax evasion in developing countries the calibrated model is able to generate reasonable predictions for net tax rates the corruption associated with public investment projects and the negative correlation between corruption and tax revenue the presence of corruption and evasion is shown to have significant but not large negative effects on economic growth the relatively moderate effects help explain the absence of a robust negative correlation between growth and corruption in cross country data the model also implies that cracking down on tax evasion before addressing corruption can be a bad idea and that higher wages for public officials can improve welfare jel h3 o4

corruption in public service delivery an experimental analysis abstract to improve our understanding of corruption in service delivery we use a newly designed game that allows us to investigate the effects of the institutional environment on the behavior of service providers and their monitors we focus on the effect of four different factors whether monitors are accountable to the service recipients the degree of observability of service providers effort the providers wages and the providers professional norms in accordance with theory we find that service providers perform better when monitors are elected by service recipients and when their effort is more easily observed however there is only weak evidence that service providers perform better when paid more monitors are more vigilant when elected and when service providers are paid more playing the game with ethiopian nursing students we also find that those with greater exposure to the ethiopian public health sector perform less well either as provider or as monitor when the experiment is framed as a public health provision scenario suggesting that experience and norms affect behavior

uniqueness and indeterminacy on the dynamics of endogenous growth abstract in this paper we study the dynamics of endogenous growth both in the model of lucas and in a generalization that incorporates a labor leisure choice we characterize the regions of the parameter space that give rise to unique equilibria as well as the regions that yield a continuum of equilibria with positive growth rates we find that such multiple equilibria exist for empirically very plausible parameters in particular when the lucas model is modified to incorporate endogenous labor journal of economic literature numbers e00 e3 o40

plata o plomo bribe and punishment in a theory of political influence we present a model where groups attempt to influence policies using both bribes plata spanish for silver and the threat of punishment plomo spanish for lead we then use it to make predictions about the quality of a country s public officials and to understand the role of institutions granting politicians with immunity from legal prosecution the use of punishment lowers the returns from public office and reduces the incentives of high ability citizens to enter public life cheaper plomo and more resources subject to official discretion are associated with more frequent corruption and less able politicians this predicts that violence in a country will typically go together with corruption and worse politicians moreover the possibility of punishment changes the nature of the influence game so that even cheaper plata can lower the ability of public officials protecting officials from accusations of corruption immunity will decrease the frequency of corruption if the judiciary is weak and may increase the quality of politicians these predictions cannot emerge from a traditional model where only bribes are used the positive evils and dangers of the representative as of every other form of government may be reduced to two heads first general ignorance and incapacity or to speak more moderately insufficient mental qualifications in the controlling body secondly the danger of its being under the influence of interests not identical with the general welfare of the community

are nonconvexities important for understanding growth everyday experience and a simple logical argument show that nonconvexities are essential for understanding growth compared to previous statements of this well known argument the presentation here places more emphasis on the distinction between two of the fundamental attributes of any economic good rivalry and excludability it also emphasizes the difference between public goods and the technological advances that are fundamental to economic growth like public goods technological advances are rionrival goods hence they are inextricably linked to nonconvexities but in contrast to public goods which are nonexcludable technological advances generate benefits that are at least partially excludable hence innovations in the technology are for the most part privately provided this means that nonconvexities are relevant for goods that trade in private markets consequently an equilibrium with price taking in all markets cannot be sustained concluding remarks describe some of the recent equilibrium growth models that do not rely on price taking and highlight some of the implications of these models this abstract was borrowed from another version of this item

corruption in russia abstractwe analyze the determinants of corruption in russia using law enforcement data on corruption incidents for a panel of 79 russian regions for the period 2004 13 we find that the relative salaries of bureaucrats determine corruption levels corruption declines as relative salaries rise yet at strongly diminishing rates furthermore we show that even very limited media freedom helps to curtail corruption other important determinants are the strength of law enforcement education levels and unemployment rates

inefficiencies in the uk milk quota system abstract given that the common agricultural policy cap of the european union has imposed milk marketing quota on producers the fact that they are tradeable in the uk increases economic efficiency nevertheless significant inefficiencies remain modelling work reported here suggests that significantly more quota needed to be transferred from less to more efficient producers in 1996 97 for industry efficiency to be maximised and that a large number of vulnerable inefficient producers remained in milk production it is also shown that despite tradeable quotas a significant number of dairy farmers still achieve a poor match between available quota and production it is argued that the rules on quota trading could be changed to increase efficiency finally it is argued that uk milk producers are incurring costs for acquiring quota which add at least 12 5 to production costs a high price to pay for the market stability which quotas have brought

diseconomies of size with fixed managerial ability managerial ability has important implications for farm growth in this article we first show in a production model that increasing output with a fixed level of managerial ability can lead to a decrease in profits next we discuss the effect that managerial ability has on economies of size in the empirical part economies of size are estimated for a sample of dairy farms using a proxy for managerial ability which is calculated as a technical efficiency index the results show that increasing farm size while holding managerial ability constant can be an important source of diseconomies of size copyright 2003 oxford university press

the incidence and persistence of corruption in economic development abstract economic development and bureaucratic corruption are determined jointly in a dynamic general equilibrium model of growth bribery and tax evasion corruption arises from the incentives of public and private agents to conspire in the concealment of information from the government these incentives depend on aggregate economic activity which in turn depends on the incidence of corruption the model produces multiple development regimes transition between which may or may not occur in accordance with recent empirical evidence the relationship between corruption and development is predicted to be negative

state corroding federalism competition among local governments in a decentralized political system is often thought to discipline lazy or corrupt officials improving public good provision and increasing welfare some scholars note possible distortions due to spillovers or a race to the bottom but suggest that central transfers or regulations can remedy these both arguments take for granted a framework of constitutional order in which the central government can collect taxes allocate transfers and enforce regulations autonomously but what if it can t we show that if central enforcement capacity is endogenous interjurisdictional competition may itself erode the center s ability to channel competition in welfare enhancing directions regional governments may compete for capital by shielding firms from central tax collectors bankruptcy courts or regulators the equilibrium result is weaker central law enforcement and usually lower welfare interjurisdictional competition corrodes the state we illustrate with three examples from russia china and the us of cases in which such competition apparently encouraged subnational politicians to help firms evade central taxes or regulations

organized crime corruption and punishment we analyze an oligopoly model in which differentiated criminal organizations globally compete on criminal activities and engage in local corruption to avoid punishment when bribing costs are low that is badly paid and dishonest law enforcers work in a weak governance environment and the rents from criminal activity are sufficiently high we find that increasing policing and sanctions can generate higher crime rates indeed beyond a threshold further increases in intended expected punishment create incentives for organized crime to extend corruption rings and ensuing impunity results in a fall of actual expected punishment that yields more rather than less crime

corruption top down or bottom up this article studies the impact of corruption on an economy with a hierarchical government in particular we study whether centralizing corruption within the higher level of government increases or decreases the total amount of corruption we show that when the after tax relative profitability of the formal sector as compared to that of the informal sector is high enough adding a layer of government increases the total amount of corruption by contrast for high enough public wages and or an efficient monitoring technology of the bureaucratic system centralization of corruption at the top of the government hierarchy redistributes bribe income from the lower level to the upper level in the process total corruption is reduced and the formal sector of the economy expands

beneficial collusion in corruption control the case of nonmonetary penalties abstract we analyze a corruption model where a principal seeks to control an agent s corruption by supplementing a costless noncollusive outside detector such as the media with a collusive internal supervisor the principal s objective is to minimize the overall costs made up of enforcement costs and social costs of corruption if the penalties on the corrupt agent and a failing supervisor are nonmonetary in nature and yet the two parties can engage in monetary side transfers the principal may stand to benefit by allowing supervisor agent collusion this benefit may even prompt the principal to actively encourage collusion by hiring a dishonest supervisor in strict preference over an honest supervisor

the stability of economic integration and endogenous growth this paper examines the transitional dynamics of economic integration in the two country endogenous growth model of rivera batiz and romer 1991 and in an extension by rivera batiz and xie 1992 it is shown that in the absence of knowledge flows across countries economic integration will generically lead to a corner solution where only one country does all the r d and the other specializes in manufactures when countries are symmetric the world growth rate in this equilibrium will always be higher than in autarky when countries differ in their human capital endowment the world growth rate with trade is always greater than the autarky growth rate of the low growth country but may or may not be greater than the autarky growth rate of the high growth country this abstract was borrowed from another version of this item

competition and corruption in an agency relationship abstract the paper reconsiders the relationship between competition and corruption in a model where corruption has solid informational foundations and where the regulatory response to the possibility of corruption is taken into account it is shown that the effect of greater competition on corruption depends on the complementarity or substitutability of the two instruments available to decrease information rents namely low powered incentives and greater competition the paper concludes with a brief empirical exploration of the relationship between competitiveness and corruption on african data

paying politicians theory and evidence this paper looks at the theory behind the idea that paying politicians better will improve their performance the paper lays out a political agency model with adverse selection and moral hazard where politicians are subject to two period term limits this model provides a number of predictions about how the pay of politicians affects agency problems we also consider what happens when the pool of politicians is endogenous the main ideas in the model are confronted with data on u s governors jel d72 j33

integrity for hire an analysis of a widespread customs reform abstract can governments improve bureaucratic performance by hiring integrity from the private sector in the past 2 decades a number of developing countries have hired private firms to conduct preshipment inspections of imports generating independent data on the value and tariff classification of incoming shipments i find that countries implementing such inspection programs subsequently experience large increases in import duty collections by contrast the growth rate of other tax revenues does not change appreciably additional evidence suggests that declines in falsification of import documentation are behind the import duty improvements the programs also lead to declines in undervaluation and misreporting of goods classifications historically this hired integrity appears to have been cost effective with improvements in import duty collections in the first 5 years of a typical inspection program amounting to 2 6 times the program s costs

civil service and the growth of government abstract i study a model of elections which links the scale of government activity to civil service rules without tenure protections bureaucrats career prospects are tied to the electoral prospects of the party that hires them to avoid wasteful partisan spending voters only consent to minimal taxation if bureaucrats are protected by tenure they have no incentive to favour one party over another and governments only produce public goods in turn voters consent to high taxes however because higher tax revenues increase the ability of governing parties to co opt the bureaucracy through favourable compensation large scale government activity is accompanied by inefficiently high public sector wages

can corruption foster regulatory compliance the legal and economic literatures overwhelmingly support the notion that regulatory compliance is always less in the presence of corruption this paper departs from those literatures and shows that whenever public officials are paid fixed wages an increase in corruption may actually foster compliance the conditions that make this possible are laid down in a theoretical model empirical evidence that corroborates the theoretical findings is provided using firm level data for 26 transition economies

public procurement and rent seeking the case of paraguay summary a model of entrepreneurial choices in an economy with a corrupt public procurement sector is built providing predictions along two dimensions first corrupt public institutions operate by offering contracts without competition and more corrupt entities channel larger share of their budget in this way second these firms enjoy extra returns so that procurement related activities attract the best entrepreneurs a large scale microeconomic database including all public procurement operations over a 4 year period in paraguay amounting annually to approximately 6 of the country s gdp is then used to corroborate these predictions

transitional dynamics of economic integration and endogenous growth abstract rivera batiz and romer have demonstrated some comparative dynamic analysis namely comparing pre and post economic integration balanced growth paths and have derived interesting economic results even though these results are interesting their analysis has a serious shortcoming namely the balanced growth path studied by them exhibits a knife edge property and is unstable this clearly implies that their results are not robust in this paper we propose a modified knowledge driven model based on their model then we give a comparative dynamic analysis and show different results of economic integration from theirs

civil service reform abstract civil service rules governing the selection and motivation of bureaucrats are among the defining institutions of modern democracies although this is an active area of reform in the us and elsewhere economic analyses of the issue are virtually nonexistent this paper provides a welfare evaluation of civil service reform it describes the effect of reform on the interaction of politicians voters and bureaucrats and shows that society often faces trade offs between improving the bureaucracy and improving the performance of politicians my results characterize the conditions under which merit based recruitment and civil service protections such as tenure can improve welfare

on controlling crime with corrupt officials abstract this paper attempts to synthesize the recently developed strategic approach towards modeling corruption and the classical views the following propositions are sought to be proved a if reward schemes are introduced the classical and the strategic approaches yield similar results so far as controlling crime is concerned b with probability of detection being dependent on the effort of a corrupt official crime cannot be controlled and c in the context of an infinitely repeated game of crime the corrupt law enforcing agent might choose less bribes and lower effort level than the myopic optimal and hence would strategically pamper crime

determinants differentiation and development of short term marginal costs in dairy production an empirical analysis for selected regions of the eu this work provides evidence on the determinants cost differentiation and development of short term marginal costs of dairy farms in important production regions of the european union the empirical study is based on the estimation of multi input multi output symmetric generalized mcfadden cost functions using an unbalanced panel data set of the european farm accountancy data network the results show considerable regional differences in the impact of the outputs input prices and fixed factors on marginal costs strong evidence can be found that marginal costs decrease over time and is further underlined by the development of derived regional aggregated short term supply curves marginal cost elasticities and correlation coefficients validate the hypotheses that a high degree of farm specialization large milk output and low milk prices are associated with lower marginal costs furthermore the marginal cost spread in the data sample is analyzed we show that milk output milk yield herd size labor input and fodder production can be attributed to significant marginal cost differentiation of farms whereas for crop and animal output grassland stock of other animals and depreciation only minor differentiation can be found

eight questions about corruption this paper will discuss eight frequently asked questions about public corruption 1 what is corruption 2 which countries are the most corrupt 3 what are the common characteristics of countries with high corruption 4 what is the magnitude of corruption 5 do higher wages for bureaucrats reduce corruption 6 can competition reduce corruption 7 why have there been so few recent successful attempts to fight corruption 8 does corruption adversely affect growth

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

income tax compliance in a principal agent framework previous analyses have modeled income tax evasion as a portfolio problem deriving the optimal consumption of the risky asset unreported income under the assumption of a fixed probability of detection the purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions in particular we compare alternative audit policies to the standard random audit policy we focus on an audit cutoff policy in which an agent triggers an audit if his or her reported income is too low and is not audited if reported income is sufficiently high this paper establishes two major results first random audit rules are weakly dominated by audit cutoff rules it can be shown given lump sum taxes and fines that these audit cutoff rules are the least cost policies which induce truthful reporting of income second the dominance of audit cutoff rules over random audit rules holds for lump sum as well as proportional taxation in fact the equilibrium consequences of the two are equivalent

some implications of the unofficial economy bureaucratic corruption relationship in transition countries abstract this paper shows why some countries are trapped in an equilibrium with high unofficial economic activity and corruption while other countries are not the potential for different outcomes follows directly from the complementary nature of unofficial economy and corruption activity

corruption tax evasion and the role of wage incentives with endogenous monitoring technology the importance of high salaries to circumvent bureaucratic corruption has been widely recognized in the policy debate yet there appears to be much reluctance when it comes to the implementation in this paper we argue that deterring corruption through wage incentives may become prohibitively expensive that the government finds it optimal to accept higher net revenues at the expense of honesty deviating from the existing literature we set an endogenous monitoring technology that allows us to capture the dual role of auditing as a complement with and as a substitute for wage incentives to deter bribery we find that the government is better off either completely eliminating corruption or accepting corruption by offering wages lower than the market wage offering public wage premium that does not deter bribery is suboptimal when it is optimal to deter bribery the government can do it either through wage incentives or monitoring the role of wage incentives decreases in societies with higher level of dishonesty jel d73 h26 j33 j41

corruption and microenterprises in russia abstract in russia compliance with the rules and regulations that govern almost all aspects of economic life has created a hostile environment for microenterprises more serious than the regulations per se however is the potential niche they create for opportunistic behavior by regulatory authorities in russia the regulatory state has created a corrupt cadre of government bureaucrats who frequently engage in rent seeking behavior while enforcing regulations firms are not uniformly affected by corruption however this paper shows empirical evidence of differential incidence of extortion based on firm and entrepreneurial characteristics corruption in russia is similar to a regressive tax and acts as a disincentive to innovation and growth it may induce technologically inefficient production decisions and can dilute economies of scale and scope

business culture and tax evasion why corruption and the unofficial economy can persist abstract this paper shows that business and tax inspection culture can create multiple equilibria in bad equilibria high cheating and corruption increases in penalties or auditing can have perverse impacts and increase cheating the source of the multiple equilibria is the externalities created by business and tax inspection cultures as tax evasion and corruption become more common they become more acceptable and their cost is lowered a third externality that between firms and inspectors is the source of the perverse effect more cheating by firms is good for bribe taking inspectors and more bribe taking inspectors are good for cheating firms

tax farming redux experimental evidence on performance pay for tax collectors performance pay for tax collectors has the potential to raise revenues but might come at a cost if it increases the bargaining power of tax collectors vis a vis taxpayers we report the first large scale field experiment on these issues where we experimentally allocated 482 property tax units in punjab pakistan into one of three performance pay schemes or a control after two years incentivized units had 9 4 log points higher revenue than controls which translates to a 46 higher growth rate the scheme that rewarded purely on revenue did best increasing revenue by 12 9 log points 64 higher growth rate with little penalty for customer satisfaction and assessment accuracy compared to the two other schemes that explicitly also rewarded these dimensions the revenue gains accrue from a small number of properties becoming taxed at their true value which is substantially more than they had been taxed at previously the majority of properties in incentivized areas in fact pay no more taxes but instead report higher bribes the results are consistent with a collusive setting in which performance pay increases collectors bargaining power over taxpayers who have to either pay higher bribes to avoid being reassessed or pay substantially higher taxes if collusion breaks down

persistent court corruption levels of court corruption differ widely across the world to give just one example in a recent survey of firms in transition economies the proportion of respondents who answered that firms in their line of business never have to make additional payments to deal with the courts ranged from 86 8 in hungary to just 37 2 in albania a second notable feature of court corruption is its persistence over time in spite of almost universal condemnation of the phenomenon and frequent government anti corruption campaigns this article presents a simple model that explains both the variation and persistence of corruption the main argument is as follows a major role of the legal system is to provide incentives to individuals to take or abstain from certain actions this is true of regulation criminal law contract law and tort law alike however when courts are corrupt the incentive effect provided by court enforced fines and other penalties is reduced to maintain incentives higher penalties are required but these higher penalties in turn raise the bribes that court officials can extract since the stakes to winning a court case are now higher finally higher bribes make court employment more attractive to dishonest individuals which raises the corruptibility of the court loosely speaking then corruption and penalties are complements corruption necessitates higher penalties while higher penalties engender corruption the feedback effect just described gives rise to the possibility of multiple equilibria that is apparently similar countries can have very different levels of court corruption one country may have a relatively honest pool of court officials and a low level of penalties while a second country may have the opposite moreover if a country in a high corruption equilibrium attempts to shift to using smaller penalties the immediate effect is a fall in the incentives provided by the legal system as such a country can find itself stuck in a high corruption equilibrium

distribution and development in a model of misgovernance abstract this paper presents an analysis of bureaucratic corruption income inequality and economic development the analysis is based on a dynamic general equilibrium model in which bureaucrats are appointed by the government to implement a redistributive programme of taxes and subsidies designed to benefit the poor corruption is reflected in bribery and tax evasion as bureaucrats conspire with the rich in providing false information to the government in accordance with empirical evidence the model predicts a positive relationship between corruption and inequality and a negative relationship between corruption and development

educational expansion government policy and wage compression abstract the main objective is to measure the elasticity in the response of relative wages by education to relative supplies of educated labour using rigorously comparable urban wage labour market surveys an econometric comparison is made of kenya and tanzania countries which constitute a natural experiment having different secondary education policies but being similar in other relevant respects post primary educational expansion as kenya is an effective means of compressing wages however the tanzanian scarcity premium on post primary education is held down by the alternative means of public sector pay policy the analysis suggests an important role for occupation in the wage adjustment process

the effect of a fiscal squeeze on tax enforcement evidence from a natural experiment in china abstract this paper investigates the impact of the abolition of the agricultural taxes in 2005 across china on county governments incentives for tax enforcement i show that the revenue loss of county governments was largely offset by tougher tax enforcement the incentive for vat enforcement can be weakened however if the county 1 receives a lower share of total vat revenues 2 has a broader vat tax base or 3 has more abundant sources of revenue from land sales these findings suggest that incentives of local governments can be vital to tax enforcement and to the tax capacity of a country

explaining differences in milk quota values the role of economic efficiency this paper explores the relationship between milk quota values and economic efficiency in order to analyze current government interventions in quota allocations among producers for this purpose we estimate a short run variable cost function using a panel of spanish dairy farms quota values are then decomposed into economic efficiency price and scale effects in order to assess the relative influence of these factors on quota values we find that efficiency is important in explaining quota values but is uncorrelated with observable farm characteristics this casts doubts on the government s ability to allocate quotas to efficient farms in the way a well functioning quota market does

regulatory capture a review this article reviews both the theoretical and empirical literatures on regulatory capture the scope is broad but utility regulation is emphasized i begin by describing the stigler peltzman approach to the economics of regulation i then open the black box of influence and regulatory discretion using a three tier hierarchical agency model under asymmetric information in the spirit of laffont and tirole 1993 i discuss alternative modelling approaches with a view to a richer set of positive predictions including models of common agency revolving doors informational lobbying coercive pressure and influence over committees i discuss empirical work involving capture and regulatory outcomes i also review evidence on the revolving door phenomenon and on the impact that different methods for selecting regulators appear to have on regulatory outcomes the last section contains open questions for future research copyright 2006 oxford university press

bureaucratic corruption and the rate of temptation do wages in the civil service affect corruption and by how much abstract this paper presents what is to our knowledge the first empirical estimate of the effect of pay in the civil service on corruption first we show that theory is ambiguous on the relationship between civil service pay and corruption then we examine the issue using a new data set on wages for low income countries we find evidence of a statistically and economically significant relationship between relative civil service pay and corruption in regressions based on cross country averages where we control for a wide array of variables the relationship implies that a rather large increase in wages is required to eradicate corruption solely by raising wages

environmental rights on the futures markets an application to the dutch manure market a study was carried out to analyze futures markets for tradable rights after a cash market was initiated furthermore some indication was given on the size of such a futures market to provide insight into its viability futures markets can play a role in solving environmental problems by making the market for pollution rights i e p2o5 rights and agro rights milk rights sugar rights and p2o5 rights more effective and transparent moreover the market for tradable rights would be able to meet the users need for hedging this paper investigated the possibility of introducing a futures markets for tradable p2o5 rights and the commodity manure because there is already a cash market for manure although not well developed yet and there will be a cash market for p2o5 rights a futures market is a logical sequel the futures market can play a role in implementing agricultural policy efficiently and with respect to manure and p2o5 rights can be an economically efficient solution to environmental problems

determinants of bribery in international business the cultural and economic factors corruption perceptions index cpi scores for 47 countries reported by transparency international were used to ascertain determinants of bribe taking in international business two sets of independent variables economic and cultural were used in a multiple regression analysis results indicate that bribe taking was more likely to be prevalent in countries with low per capita income and lower disparities in income distribution cultural factors such as high power distance and high masculinity in a country were also likely to be associated with high level of bribe taking both economic and cultural factors were important explanatory factors of bribery implications of the findings for combating bribery are discussed

property rights corruption and the allocation of talent a general equilibrium approach we consider an economy where contracts are necessary to encourage investments contract enforcement requires that a fraction of the agents work in the public sector and do not accept bribes we find that 1 it may be optimal to allow some corruption and not enforce property rights fully 2 less developed economies may choose lower levels of property right enforcement and more corruption 3 there may exist a free lunch such that over a certain range it is possible simultaneously to reduce corruption increase investment and achieve a better allocation of talent bureaucratic corruption is widespread in many societies casual empiricism and case studies suggest that corruption distorts the allocation of resources and discourages investment and the creation of new firms e g mydral 1968 desoto 1989 cross country studies also find that countries with high corruption or long bureaucratic delays suffer lower growth e g mauro 1996 sartre 1997 it is therefore tempting to conclude that government policies and bureaucratic corruption are at least partly responsible for the lack of development or slow growth of many economies e g shleifer and vishny 1993 nevertheless governments and bureaucracies do not exist only to seek rents they perform a number of useful functions including provision of public goods correction of market failures and redistribution without understanding why the state exists it is difficult to assess why corruption arises what its consequences are and whether and how it should be prevented in this paper we analyse how the employees of the state bureaucrats can misuse their power to enforce property rights the protection of property rights is commonly viewed as one of the most important roles of the state by political philosophers as diverse as david hume karl marx and robert nozick while a number of social scientists including north and thomas 1973 and rosenberg and bridzell 1989 emphasise the importance of secure property rights in the development of western societies for the state to have a role in enforcing property rights some contractual problems must exist between private parties in our economy these contractual problems are between entrepreneurs in particular production requires two agents and one of the entrepreneurs needs to undertake an investment but the returns accrue to the other one this can be thought as a partnership with the first agent as an upstream supplier providing an input of variable

taxes and bribes in uganda abstractusing data from 433 firms operating along uganda s charcoal and timber supply chains we investigate patterns of bribe payment and tax collection between supply chain actors and government officials responsible for collecting taxes and fees we examine the factors associated with the presence and magnitude of bribe and tax payments using a series of bivariate probit and tobit regression models we find empirical support for a number of hypotheses related to payments highlighting the role of queuing capital at risk favouritism networks and role in the supply chain we also find that taxes crowd in bribery in the charcoal market

hold your nose and vote corruption and public decisions in a representative democracy this paper analyzes how corruption alters policy decisions in democracy and examines whether this distortion can result in a long term persistence of corruption even when the voters are well informed and rational by applying a citizen candidate model of representative democracy the paper analyzes how corruption distorts the allocation of resources between public and private consumption altering the policy preferences of elected and nonelected citizens in opposite directions the outcome is a reduction in real public expenditure and if the median voter s demand for public goods is sufficiently elastic a reduction in taxes in this case some citizens benefit indirectly from corruption the paper also presents some empirical evidence that in democratic countries corruption results in lower tax revenue and proceeds to show that when this occurs citizens anticipating a shift in preferences in favor of public expenditure may support institutions that favor corruption this result complements the findings of other studies that have attributed the persistence of corruption in democracy to some failure on the part of the voters or the electoral system it also bears implications for developing effective anticorruption strategies and for redefining the role that can be played by the international community

corruption extortion and evasion corruption evasion and the abuse of power and the possibility thereof are pervasive features of economic activity a prominent instance is tax collection this paper examines the implications of corruptibility and the potential abuse of authority for the effects and optimal design of potentially non linear tax collection schemes amongst the findings are that the distributional effects of evasion and corruption are unambiguously regressive under the kinds of schemes usual in practice and collecting progressive taxes without inducing evasion or corruption may require that inspectors be paid commission on high income reports but not on low with the cost of this potentially creating what seems to be a previously unnoticed trade off between equity and efficiency

politics and administration this paper develops a theory of the eectiveness of government programs in the model a bureaucrat chooses a mechanism for assigning a good such as a license or a benet payment to a client of uncertain qualications the mechanism uses a means test to verify the client s eligibility a politician who values the payos of a subset of client types exercises oversight by designating the resources available for means testing and the population of clients that can be served the model makes predictions about common administrative pathologies including inecient and politicized distribution of resources program errors and backlogs when the politician favors marginally qualied clients programs will tend to be universal with low per capita spending and high error rates when the politician favors highly qualied clients programs have smaller client populations higher per capita spending and lower error rates notably the bureaucrat can only use discriminatory testing in the latter case and programs with larger budgets do not spend more per client

moonlighting public service and private practice we study job incentives in moonlighting when public service physicians may refer patients to their private practices some doctors in the public system are dedicated and behave sincerely but others the moonlighters are utility maximizers allowing moonlighting always enhances aggregate consumer welfare but equilibrium public care quality may increase or decrease if quality increases moonlighting improves each consumer s expected utility unregulated moonlighting may reduce consumer welfare as a result of adverse behavioral reactions such as moonlighters shirking more and dedicated doctors abandoning their sincere behavior price regulation in the private market limits such adverse behaviors in the public system and improves consumer welfare

accomplice witnesses and organized crime theory and evidence from italy we develop an agency model of organized crime accounting for the main trade offs involved in the introduction of an accomplice witness program we characterize the optimal policy and identify its main determinants in a framework where public officials can be dishonest our predictions are tested by using data for italy before and after the introduction of the 1991 accomplice witness program as predicted by the model and the earlier antitrust literature the program appears to have strengthened deterrence and enhanced prosecution moreover consistent with a novel prediction of our theory the evidence suggests that the program efficacy is affected by the judicial system efficiency

corruption tax evasion and the laffer curve in a corrupt tax administration a rise in tax ratesets off complicated strategic moves by both taxpayersand administrators it is shown that in somecircumstances this may bring about laffer likebehavior of overall tax revenue i e a higher taxrate results in smaller net revenue for thegovernment further a more intense tax effort byincreasing the number of returns audited may alsoreduce net revenues finally if tax and fine ratespositively influence the level of corruption in theadministration these outcomes become more likely

wage differentials and moonlighting by civil servants evidence from cote d ivoire and peru as part of their efforts to reduce fiscal deficits many governments have allowed public sector salaries to erode often on the assumption that government workers are overpaid vis a vis those in the private sector that assumption is tested by analyzing public private pay differentials in cote d ivoire and peru switching regressions models are estimated using full information maximum likelihood fiml and the results are compared to those obtained using ordinary least squares ols techniques the ols yields seriously biased estimates of the pay structure suggesting that public wages are higher than private wages the fiml estimates show the opposite our probit analysis also shows that the wage disadvantage of civil servants is a determinant of the greater prevalence of moonlighting among public than private employees the evidence suggests that reductions in employment rather than pay while being less palatable in the short term will be more effective in the long run

the king can do no wrong on the criminal immunity of leaders abstract in its recent anti corruption campaign china removed the criminal immunity originally enjoyed by its leaders absent fundamental changes in the political institution in which incumbent leaders instead of citizens at large select the next leaders such a partial reform pays off only if i it takes place at the right time ii it goes easy on corrupt low rank officials and iii the government is reasonably centralized failing any of these such a partial reform would lead to rampant corruption throughout the government hierarchy an outcome far worse than retaining leader immunity

taxation and corruption theory and firm level evidence from uganda this article develops a simple framework to analyse the negotiation over bribe and tax payments during the tax collection process we show that the larger the bribe a firm offers to a tax collector the larger the tax rebate it gets more particularly we show that the negotiation over bribe and tax payments hinges on four other factors firms official liabilities detection firms negotiation power and red tape costs imposed on firms some of the predictions from the theoretical model are tested using firm level data from uganda we find that bribe and tax payments are inversely related thereby supporting the hypothesis of a negotiation taking place between firms and tax collectors in particular a 1 point increase in average bribe payments per employee is associated with a 7 point reduction in average amount of tax payments per employee results are robust to various instruments dealing with the endogenous relationship between bribes and taxes

a free press is bad news for corruption abstract this paper tests the proposition that a free press may be a powerful control on corruption we find evidence of a significant relationship between more press freedom and less corruption in a large cross section of countries this result is robust to specification and sample and the relationship is not sensitive to the choice of a particular measure of corruption or of press freedom furthermore we present evidence which suggests that the direction of causation runs from higher press freedom to lower corruption

performance based wages in tax collection the brazilian tax collection reform and its effects we use panel data from the brazilian tax collection authority to examine the effects of a major incentive reform instituted in 1989 to improve tax enforcement beforehand fine collections per inspection were relatively stable however a striking trend break occurred afterwards which we attribute to the incentive reform not to changes in the macroeconomy or personal and corporate income tax rates our estimates suggest the growth in fines per inspection after the reform is about 75 above what it would have been without it and that there is substantial heterogeneity in the impact of the reform across tax regions

taxes and bribery the role of wage incentives this paper presents a simple model to evaluate alternative payment schemes for tax inspectors in the presence of corruption we consider problems of both moral hazard which arises because taking bribes cannot be observed without costly monitoring and adverse selection since not all potential tax inspectors can be identified as being honest or dishonest we identify three wage regimes first one could pay the same wage that a tax inspector could earn elsewhere his reservation wage second one could pay a wage which solves the moral hazard problem i e deters bribery this we call an efficiency wage by analogy with recent models examined i n macro economics third the government could pay a wage below the reservation wage at which only the dishonest become tax inspectors the capitulation wage we make precise the conditions under which each yields the greatest amount o f tax revenues net o f administrative costs many countries in the developing world are undergoing structural adjustment programmes which require fundamental fiscal changes outside agencies advise restoration of budget balance a task which involves expenditure cuts and tax increases the treatment of public employee pay scales often poses a particular dilemma i n this process wages and salaries are a significant component of government expenditures and one important question concerns the extent to which wages rather than employment cuts should be used to save money there is sometimes a reluctance to advocate wage cuts stemming in part from a feeling that this might impair the performance of the public sector hence tanzi 1990 argues that a policy of wage cutting is likely to increase the inefficiency of public sector employees especially at a time when the public sector is expected to play a larger role in restructuring the economy p 16 in the context of tax collection the issue is particularly pressing given the need to raise more tax revenues a reduction in efficiency in this branch of the government i s likely t o mean that fewer returns are processed and when individuals living standards are squeezed their incentive to accept bribes in lieu o f collecting taxes i s increased o n this count i t i s even sometimes suggested that wages of tax inspectors should be increased to aid the effort to the comments of henry bienen john hey and two anonymous referees have been helpful in revising this paper the authors are also grateful t o the john m olin program for the study o f economic organization and public policy at princeton university and the pew charitable trusts for financial support mclaren also acknowledges support from the international finance section of princeton university none of the above should be implicated in any way see for example goode 1984 chapter 1 3 and gould and amaro reyes 1983

fiscal corruption a vice or a virtue abstract recent literature on tax administration in poor countries suggests there are virtues in allowing fiscal corruption by strengthening the bargaining power of corrupt tax officers it is argued that tax evasion may be reduced and tax revenues increased but does such an intriguing paradox justify policies that stimulate corruption our answer is no and this note puts forward three arguments to support our view first while an increase in corruption may raise revenues in the short run in general the opposite will be the case in the longer run second the instrumental value of reducing corruption goes far beyond its effects on tax evasion and tax revenues accepting corruption as a policy strategy to increase tax revenues may undermine values of democracy and good governance third eliminating corruption should be considered an end in itself thus contrary to recent suggestions on incentive reforms in tax administration the reasonable starting point for policy debates in this area should still be that an increase in fiscal corruption is not an appropriate instrument for raising tax revenues sustained development cannot occur in an institutional framework that fosters corruption and extra legal tax enforcement

quota mobility and quota values abstract the institutional arrangements governing quota mobility influence quota prices and the structural development of the dairy sector this article considers milk quotas in a number of oecd countries where they are applied under different conditions and with various policy goals pressure to free quota markets and to increase quota mobility is inherent in a quota system in a market economy unless very strict government rules are applied this implies that quota rights are capitalized in quota prices which increases the financial burden of new producers among others improving quota mobility by organizing quota trade or leasing will speed up structural development empirical research tends to confirm economic theory about the factors which determine quota values larger and or more efficient farms increase their share in milk production by trading or leasing

corruption across countries and regions some consequences of local osmosis abstract large and persistent differences in corruption across comparable countries is a challenging research issue even more intriguing are such differences across regions within the same country because the typically considered socioeconomic and governance characteristics are generally more similar across such regions than across different countries this paper s principal theme is that individuals perceptions of their environments are influenced by the realities that they have faced in the past these perceptions affect their current and future actions which in turn influence the current and future realities an articulation and analysis of these dynamics yields significant observations concerning individuals behavior and societal outcomes

choosing agents and monitoring consumption a note on wealth as a corruption controlling device there are a large number of cases where corruption has been discovered when investigating levels of consumption that appear to be hard to justify the informativeness of an agent s level of consumption depends on his legal income and initial level of wealth as conspicuous consumption by wealthy agents leads to little updating of the principal s belief about their honesty this introduces a tendency to prefer poor agents as they are easier to monitor more generally we describe the basic problem of choosing agents and monitoring consumption with the aim of reducing corruption and discuss features of the practical applications castrated slaves called eunuchs were employed by sultans to guard their harems this solution to a particularly distressing principal agent problem is one instance of a general strategy that can be called choosing agents in this strategy the principal selects an agent to whom he is about to delegate a task based on an observable characteristic in the standard agency model it is clear that the agent s degree of risk aversion can be costly to the principal perhaps because of the difficulty in observing risk aversion few economists have emphasised the potential benefits of using particular types of agents an exception is schelling 1960 who discusses the use of agents with a low personal cost of conflict and mentions the strategic advantages of delegating authority to a military commander of known motivation a subsequent paper by vickers 1985 emphasises the potential value of hiring a manager who is committed to maximise the company s sales instead of profits similarly rogoff 1985 analyses the benefits of delegating the conduct of monetary policy to a conservative central banker in a setting where there is time inconsistency while rotemberg and saloner 2000

the structure of technology in brazilian sugarcane production 1975 87 an application of a modified symmetric generalized mcfadden cost function sugarcane based ethanol has become a primary automotive fuel in brazil over the past 15 years because sugarcane costs are over two thirds of the costs of ethanol production the economic efficiency of this renewable petroleum substitute hinges on the structure of technology in sugarcane production in this paper a modified symmetric generalized mcfadden sgm cost function for sugarcane is estimated and the presence of technical change and economies of scale are investigated the original sgm proposed by diewert and wales 1987 is modified to allow for fixed factors of production this allows the cost function to be applied to processes which have fixed factors the results suggest that there is no empirical evidence of economies of scale and very little technical change only in the north of brazil the implications for the future economic efficiency of this petroleum substitute are discussed