Developing rotten institutions

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Title: Developing rotten institutions
Authors: Kelly, Morgan
Permanent link: http://hdl.handle.net/10197/949
Date: Aug-2005
Abstract: This paper models corruption as optimal parasitism in organizations where teams of agents are weakly restrained by principals. Each agent takes on part of the role of principal, choosing how much to invest in policing to repress corruption in others and how rapaciously to act when unpoliced opportunities arise. This simple model incorporates most of the factors stressed in empirical analyses of corruption, and gives rise to a wide variety of equilibria. Allow income to co-evolve with corruption, we show how adding corruption to a textbook exogenous growth model leads to a Lucas paradox. When income and corruption affect each other suffciently strongly, economies converge to two corner equilibria despite diminishing returns to capital: a rich, clean corner and a poor, corrupt one; a pattern that appears to characterize international data. This paper is part of the International Trade and Investment Programme of the Geary Institute at UCD.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Copyright (published version): UCD School of Economics 2005
Subject LCSH: Corruption--Mathematical models
Economic development
Organizational behavior
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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