A theoretical analysis of corruption and business
by Rafael Salvador Espinosa Ramirez, Raul Francisco Montalvo Corzo
International Journal of Business Competition and Growth (IJBCG), Vol. 1, No. 1, 2010

Abstract: Despite the claimed benefit argued by the implementation of institutional reforms in many economies, this benefit is not clear, as there are some structural inefficiencies that hamper the benefit of such reforms. We develop a political-economic model in which a government in a country tries to set the optimal institutional level taking into account the cost of this policy on Foreign Direct Investment (FDI) and on the benefit of two kinds of people: honest and dishonest. We analyse the policy decision taking into account a political contribution made by a corrupted lobby group to benefit themselves from a lower institutional level. Our results suggest that the optimal institutional level will depend on the degree of efficiency of the legal structures against illegal structures.

Online publication date: Sun, 25-Apr-2010

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