Some Economic Costs of Corruption in LDCs

Abstract

It has often been argued that bribery creates auction-like conditions and, hence, improves allocative efficiency of bureaucratic decisions. This article shows that these auction-like conditions are not likely to exist because officials will restrict access to bribery in order to reduce the risks of detection. Alternatively, officials may engage in supply-stretching whose long-term costs are likely to outweigh any gains in allocative efficiency. It is also shown that bribery may impose other costs resulting from the efforts of officials to create or augment the opportunities for receiving bribes.

Keywords: corruption, bribes, extortion, costs, efficiency, allocation, supply, gains, auction

JEL Classification: H19, H79, H80, K40, K42