Scandinavian Working Papers in Economics
Umeå Economic Studies,
Umeå University, Department of Economics
No 1026: Corruption, the Ability to Pay, and the Costs of Breaking the Law
Leonidas Koutsougeras (), Manuel S. Santos () and Fei Xu ()
Additional contact information
Leonidas Koutsougeras: University of Manchester, School of Social Science
Manuel S. Santos: University of Miami, Miami Herbert Business School
Fei Xu: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden
Abstract: We propose a game-theoretic model of corruption to account for some crosscountry empirical regularities on the depth or prevalence of corruption, the variability of the bribe, officers’ salaries, and investment in anticorruption measures. Under standard conditions the model has a unique equilibrium in which the depth of corruption and the bribe are endogenously determined. The analysis centers on the further effects on these equilibrium values from changes in the “ability-to-pay” of the parties involved, the government’s efficiency to fight corruption, and the officer’s costs of breaking the law. A mere change in the officer’s salary, however, can be counterbalanced by a compensatory bribe; hence, the salary does not affect the depth of corruption.
Keywords: The depth of corruption; the bribe; anticorruption measures; officer’s salary; Nash equilibrium
Language: English
49 pages, First version: May 27, 2024. Revised: October 24, 2024.
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