Legalize, tax and deter: optimal enforcement policies for corruptible officials

Available from: 
October 2013
Paper author(s): 
Alfredo Burlando (University of Oregon)
Alberto Motta (University of New South Wales)
Microeconomics - Competition - Productivity

Corruption of law enforcers remains a signicant problem in many countries. We propose a model where deterrence of a harmful activity (such as trade in illicit drugs) is hindered by corruption, but standard anti-corruption policies might be too costly to implement. We show that an alternative tax-and-legalize policy can yield signicant benets, especially in poor countries with weak institutions and for activities that are not too harmful. Using a tax-and-legalize scheme, the government reduces the cost of implementing standard anti-corruption policies, easing the ght against corruption. However, a tax-and-legalize policy could increase the equilibrium number of harmful activities.


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Research section: 
Lacea 2013 annual meeting
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