Cronyism and corruption in India: A game theoretic analysis

Abstract

In this paper, we analyze some aspects of cronyism and corruption in India. We develop a three‐stage game‐theoretic model where the ruling political party and a capitalist interact with each other. The ruling party, in return of a donation from the capitalist, sets a policy that favors the latter. Our model leads to some interesting results of which the most striking is that only the political party gains with increase in cronyism and corruption. The society as a whole suffers (total welfare goes down), and even the capitalist is worse off (profit declines). Despite the decrease in profits, the capitalist finds it worthwhile to take part in the game only because it would have been worse off even further if it had not taken part in the game. We come to the broad conclusion that a strong corrupt political party is necessarily detrimental to all sections of the population.

Trade liberalization, wilful credit defaults and bank bribery in a credit‐constrained economy

“…This leads to a perfectly inelastic labour supply, which is fixed at L. On the other hand, the form of utility function of the households leading to Marshallian demand is irrelevant for determining the product prices. This is because the assumption of small open economy in which commodity prices are determined in the world marker is invariant to domestic demand and supply conditions (see Caves et al, 1960). 12 For a detailed mathematical derivation for the proof of Lemma 1, see Appendix 1.…”

“…On the micro‐theoretic front, Chaudhuri and Gupta (1996) and Gupta and Chaudhuri (1997) using a non‐cooperative game theoretic model analysed delayed disbursement of formal credit and bank lending corruption, respectively. Other aspects of corruption in the domain of micro‐theoretic analysis includes globalization and corruption (Khan et al, 2022; Marjit et al, 2014), corruption and wage inequality (Mandal & Marjit, 2010), competitive bribery (Lien, 1986) and political cronyism and corruption (Chaudhuri et al, 2022a; Mahata et al, 2023) among others. Our departures from the extant literature are manifold.…”