Premium
Bribery, hold‐up, and bureaucratic structure
Author(s) -
Bennett John,
Rablen Matthew D.
Publication year - 2021
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12985
Subject(s) - bureaucracy , expropriation , welfare , economics , sunk costs , investment (military) , microeconomics , market economy , monetary economics , law , political science , politics
We consider infrastructure provision by a foreign investor when the domestic bureaucracy is corrupt, but also cares for domestic welfare. Bureaucrats bargain with the investor over price and (potentially) bribes, both before the investment is sunk and afterwards, using the threat of expropriation. We show that domestic welfare may be greater in equilibria with bribery than in equilibria without. We specify conditions under which changes in the degree of bureaucratic centralization or of bureaucratic care have a positive, negative, or nonmonotonic effect on domestic welfare. The impact of centralization on domestic welfare is mediated through the level of bureaucratic care.