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INTERMEDIATED CORRUPTION
Author(s) -
Dusha Elton
Publication year - 2015
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12129
Subject(s) - intermediary , language change , financial intermediary , intermediation , business , value (mathematics) , government (linguistics) , monetary economics , audit , welfare , economics , microeconomics , financial system , market economy , accounting , finance , art , linguistics , philosophy , literature , machine learning , computer science
I model the role of intermediaries in corruption and examine the effects of policy on the level of intermediated corruption, price of permits, and welfare. Intermediaries with a history of being honest earn higher premiums. The frequency of corrupt transactions is inversely related to income levels. When the government increases the fraction of profits that it extracts from entrepreneurs, intermediation intensifies, as entrepreneurs are reluctant to obtain licenses through legal means. Therefore, when business costs are high, measures to combat corruption transfer value to intermediaries. Increasing the frequency of governments audits can increase the equilibrium price of permits.