Corruption and competition in the presence of inequality and market imperfections

Indranil Dutta, Ajit Mishra

    Research output: Working paperDiscussion paper

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    Abstract

    We analyze the relation between corruption, competition and inequality in a developing economy context where markets are imperfect and there is wealth inequality. We consider an economy where different types of households (potential firms) choose whether to enter production sector or not. The potential firms may be either efficient or inefficient. The credit market is characterised by information asymmetry and wealth inequality. As a result the market fails to screen out the inefficient types. In addition to the imperfect screening in the credit market, the inefficient type’s entry is further facilitated by corruption in the product market. These inefficient types also find it profitable to engage in corruption and their presence in the market leads to a rise in corruption. We analyze the market equilibrium and look at some of the implications. We show that a rise in inequality can lead to an increase in corruption, and greater competition and higher levels of corruption can co-exist.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2003

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.152
    ISSN (Print)1473-236X

    Keywords

    • Corruption
    • Competition
    • Credit market
    • Inequality
    • Screening

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