Government Positions for Sale - A Model of Grand Corruption

Abstract

This paper develops a model for a particular type of grand corruption often encountered in developing countries, namely, the sale of government positions by autocratic rulers. A two-stage game is considered, where the autocrat moves first to maximize his revenue from the sale of positions in the cabinet by choosing a price that must be paid by interested politicians. The latter become bureaucrats who maximize their utility from bribe revenues for the given price set by the president. Backward induction yields subgame-perfect equilibrium levels of corruption of the president and bureaucrats. A key insight from this analysis is that conventional tools of fighting corruption become ineffective when corruption at the very top is ignored. The model is distinctive in its treatment of individual moral costs of being corrupt and in its consideration of a revolutionary constraint on the autocrat's choices.

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