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Inequality, Corruption, and Competition in the Presence of Market Imperfections

Author

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  • Indranil Dutta
  • Ajit Mishra
Abstract
In this paper they analyze the relation between inequality, corruption and competition in a developing economy context where markets are imperfect. They consider an economy where different types of households (efficient and inefficient) choose to undertake production activities. For production, households borrow capital from the credit market. They also incur non-input costs which they could avoid by bribing inspectors. Due to information asymmetry and wealth inequality, the credit market fails to screen out the inefficient types. In addition to the imperfect screening, the inefficient type’s entry is further facilitated by corruption. They analyze the market equilibrium and look at some of the implications. They show that a rise in inequality can lead to an increase in corruption along with greater competition. [Research Paper No. 2005/46]

Suggested Citation

  • Indranil Dutta & Ajit Mishra, 2010. "Inequality, Corruption, and Competition in the Presence of Market Imperfections," Working Papers id:3256, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:3256
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    References listed on IDEAS

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    1. repec:eid:wpaper:13/10 is not listed on IDEAS
    2. Ajit Mishra & R Ray, 2010. "Informality, Corruption, and Inequality," Department of Economics Working Papers 13/10, University of Bath, Department of Economics.

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    Keywords

    corruption; competition; credit market; inequality; screening;
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