On the persistence of corruption

This paper tries to answer the question why the phenomenon of corruption seems to be inherently existent in any society. The dynamic model presented shows how rational agents may generate multiple equilibria of corruption within the same kind of socio-economic system. We assume that the individual disutility caused by the loss of reputation from a corrupt transaction depends on the acceptance of corrupt behavior by the representative individual. Depending on the values of some key parameters like the marginal utility of corrupt behavior and the initial acceptance of corruption a completely corrupt equilibrium where all people completely accept corruption or a completely honest equilibrium where corruption is not accepted at all may be the limit state of the optimal path. Also inner equilibria in-between exist; however, they are always unstable.     

Democracy,Rule of Law,Corruption Incentives,and Growth

We bridge the gap between the standard theory of growth and the mostly static theory of corruption. Some public investment can be diverted from its purpose by corrupt individuals. Voters determine the level of public investment subject to an incentive constraint equalizing the returns from productive and corrupt activities. We concentrate on two exogenous institutional parameters: the “technology of corruption” is the ease with which rent‐seekers can capture a proportion of public spending. The “concentration of political power” is the extent to which rent‐seekers have more political influence than other people. One theoretical prediction is that the effects of the two institutional parameters on income growth and equilibrium corruption are different according to the constraints that are binding at equilibrium. In particular, the effect of judicial quality on growth should be stronger when political power is concentrated. We estimate a system of equations where both corruption and income growth are determined simultaneously and show that income growth is more affected by our proxies for legal and political institutions in countries where political rights and judicial institutions, respectively, are limited.     

Impact of electoral competition,swing voters and interest groups on equilibrium policy platforms: Exploring the strategic forces at work

This paper constructs a stylized model of election between two opportunistic candidates who can influence equilibrium policy platforms in exchange for monetary contributions provided by two distinct lobby groups. Two key features are embedded which give rise to a dual uncertainty in the model: the existence of partisan spread across voter groups as well as the embezzlement of campaign funds received by the electoral candidates from the interest groups. We derive and compare the equilibrium platforms of the two office-seeking candidates in three scenarios: none of the above uncertainties exist (benchmark case), only uncertainty about voters’ preferences exist (swing-voter case), and both the uncertainties exist (swing voters and lobby groups case). We find that an opportunistic candidate’s swing-voter tax platform is always lower than the benchmark tax platform. Additionally, the equilibrium tax choice of electoral contenders in the swing voters and opposing lobby groups case is found to be greater than the tax level chosen under the swing-voter case if the lobby group advocating a greater level of tax is sufficiently well-organized such that it outweighs the relative swing-voter effect in that group. Furthermore, we find that when an electoral candidate transitions from being highly corrupt to becoming relatively more honest, the equilibrium level of public good provision adjusts in conformity with the well-organized group’s economic preferences. Finally, if the strength of relative lobbying effect is weaker, a lower partisan bias within that group induces an electoral candidate to choose a tax platform closer to that group’s policy bliss point.     

A Core‐Equilibrium Convergence in a Public Goods Economy

This paper shows a core‐equilibrium convergence in a public goods economy where consumers' preferences display warm glow effects. We demonstrate that if each consumer becomes satiated to other consumers' provision, then as the economy grows large the core shrinks to the set of Edgeworth allocations. Moreover, we show that an Edgeworth allocation can be decentralized as a warm glow equilibrium.     

Ecological dumping under foreign investment quotas

In this paper, we examine the discrimination of emission taxes between the export and nontradable sectors in a small open economy. A few articles indicate that there should be no differentiation of environmental policies between sectors in the economy if the government uses indirect instruments such as emission taxes. However, we show that discrimination of emission taxes may occur in an economy that imposes foreign investment quotas. In particular, the possibility that ecological dumping occurs is higher if export goods are more labor intensive than import goods (as in developing countries). Moreover, in the case where import goods are the most capital intensive, both emission tax rates may be lower than the marginal environmental damage, and ecological dumping may occur. It is also shown that easing foreign capital quotas may deteriorate the country’s welfare.     

Land rents,optimal taxation and local fiscal independence in an economy with local public goods

A general equilibrium model of an economy with cities, farms and free migration of population is constructed. The cities produce internationally traded goods via production functions subject to economies of scale. They also produce housing and a local public good. Two areas are defined to be disjoint if households performing an economic activity in one area are not operating in the other. An area is exclusive if it is disjoint to its complement. The economic surplus of an area is then defined to be the value of the area's net export of goods and resources. Local efficiency of an area is defined to be a state in which its economic surplus attains its maximum value. This state is proved to be a necessary condition for Pareto optimality of the economy. It is then proved that beside Piguvian corrective taxes the only taxes necessary and sufficient to finance local government activities efficiently, are taxes on land rents. Furthermore, if jurisdiction of a local government is over an exclusive area no intervention of central government is necessary, and local authorities can be fully autonomous. If the economy can be divided into pairwise disjointed exclusive areas, those areas are optimal jurisdictions in the sense that efficiency in the economy can be achieved with local authorities only.     

Skill Loss, Ranking of Job Applicants and the Dynamics of Unemployment

Abstract. This paper investigates the consequences of skill loss as a result of unemployment in an efficiency wage model with turnover costs and on-the-job search. Firms are unable to differentiate wages and therefore prefer to hire employed searchers or unemployed workers who have not lost human capital. It is shown that if some fundamental factor in the economy changes, this will result in a lengthy adjustment process with substantial long-run unemployment effects. Moreover, the model is capable of generating persistence, but the amount depends on the duration of the shock itself.     

Modelling the dynamics of corruption and unemployment with heterogeneous labour

This paper presents an endogenous growth model with heterogeneous labour, endogenous unemployment, and public sector corruption. Unlike most previous studies, the model does not separate public officials and private individuals into two distinct groups. Instead, taking up bureaucratic appointment as a public servant is modelled as an occupational choice, which then allows for the endogenous determination of the proportion of public officials, the share of corrupt officials among them, and the public investment efficiency of the economy. The dynamics of endogenous corruption and unemployment are studied using numerical policy experiments based on a stylized representation of a middle-income African economy with high corruption and unemployment. The main finding is that, large-scale public infrastructure push has no effect on raising growth in an economy with high corruption. However, if preceded by social and anti-corruption policies that successfully induce a structural change, it will then be effective in raising growth.     

Corruption and privatization

This paper analyses the relation between corruption and privatization. In particular, we study how corruption affects the acquisition price and the post-privatization market structure. The model predicts that privatization in countries with highly corrupt government results in a higher degree of market concentration than in countries where governments are less corrupt. The acquisition price is also likely to be higher when a government is highly corrupt than when government officials are honest or moderately corrupt. Finally, and perhaps surprisingly, we demonstrate that a stronger propensity to embezzle state revenues may reduce government officials' benefits from corruption. The reason is that the more eager the government officials are to take bribes, the cheaper they are to buy.     

Bribery,inefficiency, and bureaucratic delay

We examine bribery in a dynamic setting with a partially honest bureaucracy. The presence of honest officials lowers the bribe that a corrupt official can extract from efficient applicants. Consequently, efficient applicants may face delays in receiving licenses, or may never receive licenses, as inefficient applicants are serviced ahead of them. An increase in the proportion of honest officials, while directly increasing the incidence of socially optimal decisions, can also induce greater inefficiencies (misallocation and delay) from corrupt officials. As a result, social welfare may be non-monotonic in the proportion of honest officials, and small differences in monitoring costs may lead to very different levels of corruption. Competition between officials can hurt efficiency; its desirability depends on the prevalence of applicants' ability to pay bribes.     

Domestic Unionization and the Political Economy of Strategic Export Policy

This paper examines the effect of lobbying by a labor union and its parent firm on the argument for strategic export policy in a third market-unionized duopoly. The lobbying-induced export policy frequently deteriorates domestic welfare as compared with free trade. It is true that the politically-determined export policy can improve domestic welfare if the union's bargaining power is strong and the domestic government's responsiveness to political contributions is weak. However, even if the conditions are met, implementing the lobbying-induced export policy will not enhance domestic welfare more than improving labor–management relations. Moreover, the improvement of their relations will be hampered by the opportunity of their lobbying. These results indicate that strategic export policy toward a unionized duopoly should be restrained in light of political economy.     

Optimal Export Taxes, Welfare, Industry Concentration, and Firm Size: A General Equilibrium Analysis

By using an imperfect-competition model, it is shown that an export tax, optimal in partial equilibrium, is upwardly biased and may not be optimal in a general equilibrium setting with free entry/exit. It is shown also that the export tax has an ambiguous impact on firm size. The results of an applied general equilibrium model for the Turkish economy suggest that the export tax estimated with the PE formula is larger by a small factor than the computed export tax. However, the export tax leads to an increase in firm size and, most importantly, to a social welfare loss.     

International Factor Mobility, Government Size and Welfare

An examination of the available data reveals that the size of government varies considerably across time and countries. By making use of a simple general equilibrium model, this paper demonstrates that size of government is affected by the availability of capital and labour within an economy. Specifically, this paper utilises a model of a closed economy that produces one-private and one-public good. Both goods are produced by means of capital and labour. Production functions are subject to constant returns to scale and perfect competition prevails in all markets. The elasticity of substitution between the public and the private good is greater than unity and there is no international factor mobility in the initial equilibrium. The size of government is measured by total spending on the public good as a proportion of the total expenditure on the private and public goods. It is shown that capital (labour) inflow can decrease (increase) the size of government. Capital inflow increases welfare if the private good is relatively capital intensive whereas labour inflow increases welfare if the public good is relatively capital intensive.     

Trade,Growth, and Increasing Returns to Infrastructure: The Role of the Sophisticated Monopolist*

Equilibrium in international trade with increasing returns in infrastructure depends on whether the infrastructure provider is “naïve” or sophisticated. A monopolist produces infrastructure under decreasing cost using fixed equipment. Unlike similar work, we derive a unique closed‐economy equilibrium. In a small open economy, with “naïve” infrastructure provider(s), multiple equilibria obtain. The industrial export potential of the economy depends on unexhausted economies of scale, and equilibria are possible where manufactures are exported despite an autarky price higher than the world price. With a sophisticated infrastructure provider, even an open economy has a unique equilibrium, which, at least as long as economies of scale are unexhausted, also involves more industrialization than the “naïve” equilibria. Access to the unlimited world market is necessary for significant industrialization but is not sufficient: one may also require “Schumpeterian” entrepreneurs, monopolists with a panoramic vision of the economy and of their catalytic role in it.     

A dual economy model of endogenous growth with R&D and market structure

This paper develops a dual economy endogenous growth model to consider the effects of market structure and innovation on the rate of growth of an economy. There is an innovative goods sector where firms consistently invest in research and development to produce new products within a framework of monopolistic competition. Firms in the traditional goods sector produce a homogenous good, compete in a form of oligopoly (quantity competition), and seek to reduce their production costs. It is shown that growth is increasing in the market power that firms in the innovative goods sector obtain but decreasing in the equilibrium number of firms in the traditional goods sector.     

两类人假说——中国经济学的一个理论支柱

经济活动有两类人参与:一是从事生产交换活动的人,是为私家人(经济人);二是为经济活动建立制度规则、维持秩序的人,是为公务人.古代和近代是一种小规模生产,制度规则长期固定,公务人的参与被遮蔽,只显示出私家人活动,由此亚当·斯密提出了经济人假说.工业革命后,生产走向社会化,制度规则的变革加快,公务人与公务活动的作用增大.而在西方国家,资本主义市场经济占统治地位,这种制度凸显私家人,因而在西方经济学各种理论框架中,经济人假说是一大理论支柱.社会主义市场经济以公有制为主体,公务人与公务活动的作用更大,两类人假说更为适用,可为开创21世纪中国经济学提供一个理论支柱.     

Money in the pure consumption loan model

The purpose of this paper is to show how modern techniques of Temporary competitive equilibrium analysis can be applied to models of the “pure consumption loan model” type. One considers Samuelson's simplest model where traders live two periods and where money is the only store of value. It is proved that a temporary equilibrium exists if price expectations are sufficiently independent of current prices. A stationary market equilibrium is shown to exist if there is a set of traders (i) whose total resources are greater when they are young than when they are old, (ii) who are indifferent between present and future consumption. It is proved that this existence theorem still holds if the economy is sufficiently “close” to an economy which has this property. A stationary market equilibrium is shown to be Pareto optimal if all traders hold positive cash balances. It may be inefficient if this condition is not satisfied, for some traders may then be willing to borrow, which they cannot do in this model.     

Managerial talent,motivation, and self-selection into public management

The quality of public management is a recurrent concern in many countries. Calls to attract the economy's best and brightest managers to the public sector abound. This paper studies self-selection into managerial positions in the public and private sector, using a model of a perfectly competitive economy where people differ in managerial ability and in public service motivation. We find that, if demand for public sector output is not too high, the equilibrium return to managerial ability is always higher in the private sector. As a result, relatively many of the more able managers self-select into the private sector. Since this outcome is efficient, our analysis implies that attracting a more able managerial workforce to the public sector by increasing remuneration to private-sector levels is not cost-efficient.     

Economic growth,corruption and tax evasion

In this paper, we explore tax revenues in a regime of widespread corruption in a growth model. We develop a Ramsey model of economic growth with a rival but non-excludable public good which is financed by taxes which can be evaded via corrupt tax inspectors. We prove that the relationship between the tax rate and tax collection, in a dynamic framework, is not unique, but is different depending on the relevance of the “shame effect”. We show that in all three cases — “low, middle and high shame” countries, the growth rate increases as the tax rate increases up to a threshold value, after which the growth rate begins to decrease as the tax rate increases. But, for intermediate tax rates, the rate of growth for “low shame” countries is lower than that of “uniform shame” countries which is, in turn, lower than that of “high shame” countries. This happens because the growth rate is more sensitive to variations of t in an honest country rather than in a corrupt country.     

The choice between civil service and entrepreneurship in the presence of credit rationing

This article examines the role of opportunities to be civil servants in determining both an individual’s ability to borrow to be an entrepreneur and his career choices that are related to the endowment of wealth. It is assumed that the civil servants are hired to produce the public goods or services that benefit all the entrepreneurs hiring workers to produce private goods. In considering the case where the position of a civil servant is randomly up for grabs without rent-seeking, it is known that the effect of a rise in the number of civil servants to be hired on an individual’s ability to borrow is mainly based on the improved efficiency and a rise in the wage due to an increase in the demand for workers. When the position of a civil servant is secured through rent-seeking, it is found that an improvement in the financial environment will lower the cost of rent-seeking if the welfare of the civil servant is not too high.