Rents, Competition, and Corruption

TLDR

Competition’s impact on corruption is unclear, but lower competition raises rents that can incentivize bureaucratic malfeasance, and empirical examples support a positive rent‑corruption link. The study tests whether natural rents, such as those from oil, and rents generated by limited product‑market competition promote corruption. A theoretical model linking rents to corruption is constructed.

Abstract

Theoretically the effect of competition on corruption is ambiguous. Less competition means firms enjoy higher rents, so that bureaucrats with control rights over them, such as tax inspectors or regulators, have higher incentives to engage in malfeasant behavior. Examples of a positive connection between rents and corruption abound, however. The hypothesis that natural rents, as in the case of oil, and rents induced by lack of product market competition foster corruption, is examined. A model is set up connecting rents to corruption.