- JOURNAL OF DEVELOPMENT ECONOMICS Journal
- July 2010
International Standard Serial Number (ISSN)
Electronic International Standard Serial Number (EISSN)
This paper studies the consequences of introducing competition between bureaucrats. Bureaucrats are supposed to grant licences to firms that satisfy certain requirements. Firms have to
invest into satisfying these requirements. Some bureaucrats are corrupt,
that is, they give the licence to any firm in exchange for a bribe.
Some firms prefer to buy the licence rather than to invest and satisfy
the requirements imposing negative externalities on the society. The
competition regime is found to create more ex ante incentives for firms
to invest while the monopoly regime is better at implementing ex post
allocation, that is, distributing the licences given the firms'
investment decisions. Additional results on the effects of
intermediaries, staff rotation, punishments and endogenous entry to the
bureaucracy are provided.