Who Gains from Non-Collusive Corruption?

Abstract

Non-collusive corruption, i.e., corruption that imposes an additional burden on business activity, is particularly widespread in low-income countries. We build a macroeconomic model with credit market imperfections and heterogeneous agents to explore the roots and consequences of this type of corruption. We find that credit market imperfections, by generating rents for the incumbent entrepreneurs, create strong incentives for corrupt behavior by state officials. However, non-collusive corruption not only redistributes income from non-officials towards officials but also within the group of potential entrepreneurs. If borrowing is limited, bribes prevent poorer but talented individuals from starting a business. But this is likely to benefit those who may enter anyway; the cost of capital is lower and there is less competition on the goods markets.Who Gains from Non-Collusive Corruption?Reto Foellmi * and Manuel Oechslin † ‡ November 7, 2005Abstract Non-collusive corruption, i.e., corruption that imposes an additional burden on business activity, is particularly widespread in low-income countries. We build a macroeconomic model with credit market imperfections and heterogeneous agents to explore the roots and consequences of this type of corruption. We find that credit market imperfections, by generating rents for the incumbent entrepreneurs, create strong incentives for corrupt behavior by state officials. However, non-collusive corruption not only redistributes income from non-officials towards officials but also within the group of potential entrepreneurs.If borrowing is limited, bribes prevent poorer but talented individuals from starting a business. But this is likely to benefit those who may enter anyway; the cost of capital is lower and there is less competition on the goods markets.JEL classification: O11, D31, D73

Decentralisation and corruption: evidence from drinking water sector

“…Foellmi and Oechslin, 2007) distinguish between collusive and non-collusive corruption, that is, 'corruption with theft' and 'corruption without theft' in the terminology of Shleifer and Vishny (1993). We find that in our context, it is very difficult to make this distinction.…”

Corruption Along Ethnic Lines: A Study of Individual Corruption Experiences in 17 African Countries

“…Collusive corruption, on the other hand, is mutually beneficial to both the bribe-taker and the bribe-giver, meaning that upholding the corrupt relationship lies in the interest of both parties involved (see e.g. Brunetti and Weder, 2003;and Foellmi and Oechslin, 2007). Whereas collusive corruption often refers to situations where the individual is involved in illegal activity (e.g.…”

Price adjustment under the table: Evidence on efficiency-enhancing corruption

“…Although corruption is believed to be a widespread phenomenon (see, for example, Marjit, et al 2000;Abed and Gupta, 2002;and Foellmi and Oechslin, 2006), direct hard data on corruption and its prevalence is scarce because of its illegal nature. The absence of hard quantitative data on corruption makes it difficult to bring corruption-related debates-and more generally public debates related to unethical behavior-to the forefront of the policy discussion agenda (Hillman, 2002).…”