Crime and Uncertain Punishment in Transition Economies
Posted: 15 Jul 2009
Date Written: June 1, 2009
Abstract
We consider a continuum of agents in a transition country where the transfer of property rights has occurred. The transition is in progress and the nature of the government's future policies is unknown to the agents. Agents believe that the present government can evolve into one of two types: a traditional democratic government that supplies law enforcement and infrastructure leading to positive firm growth, or a corrupt government that may or may not provide law enforcement, does not provide a climate for firm growth, and may be confiscatory. Each agent owns one firm, and we define an illegal action (crime) as the diversion of funds from this firm into the agent's pocket. Each agent decides how much to steal, understanding that the amount he steals, and the government that will be in place, will affect the taxes he pays. Agents further believe that the objective that each possible government wishes to achieve depends on, or is limited by, the taxes it collects. Since both the agents' decisions and the tax revenue depend on the probability of each government type coming into existence, we endogenize the calculation of this probability. Using it, we determine the percentage of agents who steal, and investigate the relationship between the level of crime and uncertain political structure.
Keywords: Crime, rule of law, transition, economies in transition, law enforcement, political uncertainty, corruption, punishment
JEL Classification: K42, P14, P26
Suggested Citation: Suggested Citation