Corruption and socially optimal entry

• 成果类型: Article
• 署名作者: Amir, Rabah; Burr, Chrystie
• 署名单位: University of Iowa; University of Colorado System; University of Colorado Boulder
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2014.12.012
• 发表日期: 2015
• 页码: 30-41
• 关键词: Industrial organization of corruption; free entry; Second best entry; First best entry; Corruption and market outcomes; Corruption and imperfect competition

摘要

The paper investigates the effects of corruption in the entry-certifying process on market structure and social welfare for a Cournot industry with linear demand and costs. To gain entry, a firm must pay a bribe-maximizing official a fixed percentage of anticipated profit, in addition to the usual set-up cost. This would lead to a monopoly, but only in markets without pre-existing or shadow-economy firms. A benevolent social planner may preempt the harmful effects of corruption by either manipulating the number of pre-existing firms in the market, or by setting up two independent (corrupt) licensing authorities. A socially optimal number of firms in the market may be reached by choosing the right number of pre-existing firms or by having exactly two licensing authorities. These mechanisms may be seen as restoring second-best efficiency in settings characterized by two major sources of distortion: Imperfect competition and corruption. We also show in an extension that the basic insights carry over in a qualitative sense to a model with quadratic costs and first best entry regulation. (C) 2014 Elsevier B.V. All rights reserved.