Chris Blattman argues that many development experts overstate the case against corruption. He argues that: "Most of us fail to imagine that corruption can also grease the wheels of prosperity. Yet in places where bureaucracies and organizations are inefficient (meaning entrepreneurs and big firms struggle to transport or export or comply with regulation), corruption could improve efficiency and growth. Bribes can act like a piece rate or price discrimination, and give faster or better service to the firms with highest opportunity cost of waiting." This is an important argument to consider.In a 1994 paper Shleifer and Vishny show that when side payments between a politician and the manager of a firm are allowed, or more bluntly, when the manager and the politician can freely bribe each other, then the manager and the politician will reach the jointly efficient solution independently of the initial allocation of ownership and control rights. Such analysis is a straightforward application of the Coase theorem to privatization and does suggest that.corruption does have its uses.
Thursday, 22 November 2012
Is corruption bad for growth?
The obvious answer is yes, but is that right. As Peter Boettke argues it may not be