Abstract
This paper aims to model the link between productivity, relocation cost and corruption by applying game theory. Firms sometimes compete with one another through the bribes that they offer authorities in exchange for special privileges. Provinces are also in competition with another to retain and attract investors. The optimization problem identifies what fraction of revenue is optimal for a bribe so that both firms and authorities can optimize their outcomes. We have proven that corruption is the equilibrium outcome. Notably, the bribe rate as a share of revenue should decrease as firms’ productivity enhances, especially for those who are able to relocate to other provinces.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Athanasouli, D., & Goujard, A. (2015). Corruption and management practices: Firm level evidence. Journal of Comparative Economics, 43(4), 1014–1034. https://doi.org/10.1016/j.jce.2015.03.002
Bai, J., Jayachandran, S., Malesky, E. J., & Olken, B. A. (2017). Firm growth and corruption: Empirical evidence from Vietnam. The Economic Journal. https://doi.org/10.1111/ecoj.12560
Bardhan, P. (1997). Corruption and development: A review of issues. Journal of Economic Literature, 35(3), 1320–1346.
Bhattacharya, U., Hackethal, A., Kaesler, S., Loos, B. & Meyer, S. (2012). Is unbiased financial advice to retail investors sufficient? Answers from a large field study. The Review of Financial Studies, 25, 975–1032. https://doi.org/10.1093/rfs/hhr127.
Brouwer, A., Mariotti, I., & Ommeren, J. (2004). The firm relocation decision: An empirical investigation. The annals of Regional Science, 38, 335–347. https://doi.org/10.1007/s00168-004-0198-5
Cerqueti, R., & Coppier, R. (2011). Economic growth, corruption and tax evasion. Economic Modelling, 28(1–2), 489–500.
d‘Agostino, G., Dunne, J. P., & Pieroni, L. (2016). Corruption and growth in Africa. European Journal of Political Economy, 43, 71–88. https://doi.org/10.1016/j.ejpoleco.2016.03.002
Dal Bó, E., & Rossi, M. A. (2007). Corruption and inefficiency: Theory and evidence from electric utilities. Journal of Public Economics, 91(5–6), 939–962. https://doi.org/10.1016/j.jpubeco.2006.11.005
De Rosa, D., Gooroochurn, N., & Görg, H. (2015). Corruption and productivity: Firm-level evidence. Jahrbucher Fur Nationalokonomie Und Statistik, 235(2), 115–138. https://doi.org/10.1515/jbnst-2015-0203
Fisman, R., & Svensson, J. (2007). Are corruption and taxation really harmful to growth? Firm level evidence. Journal of Development Economics, 83(1), 63–75. https://doi.org/10.1016/j.jdeveco.2005.09.009
Friehe, T. (2008). Correlated payoffs in the inspection game: Some theory and an application to corruption. Public Choice, 137(1–2), 127–143. https://doi.org/10.1007/s11127-008-9317-7
Huang, C. J. (2016). Is corruption bad for economic growth? Evidence from Asia-Pacific countries. North American Journal of Economics and Finance, 35(100), 247–256. https://doi.org/10.1016/j.najef.2015.10.013
Jensen, N. M., Li, Q., & Rahman, A. (2010). Understanding corruption and firm responses in cross-national firm-level surveys. Journal of International Business Studies, 41(9), 1481–1504. https://doi.org/10.1057/jibs.2010.8
Lambsdorff, J. G. (2003). How corruption affects productivity. Kyklos, 56(4), 457–474. https://doi.org/10.1046/j.0023-5962.2003.00233.x
Lambsdorff, J. G. (1999). Corruption in empirical research: A review.9th International anti-corruption conference, (November), 10–15.
Méon, P. G., & Weill, L. (2010). Is Corruption an Efficient Grease? World Development, 38(3), 244–259. https://doi.org/10.1016/j.worlddev.2009.06.004
Mishra, A. (2006). Persistence of corruption: Some theoretical perspectives. World Development, 34(2), 349–358. https://doi.org/10.1016/j.worlddev.2005.03.010
Pasetta, V. (1999). Dynamics in divide the money game with bribing. Annals of Operation Research, 88, 361–377.
Rand, J., & Tarp, F. (2012). Firm–level corruption in Vietnam. Economic Development and Cultural Change, 60(3), 571–595.
Rose-Ackerman, S. (1975). The economics of corruption. Journal of Public Economics, 4(2), 187–203. https://doi.org/10.1016/0047-2727(75)90017-1
Şeker, M., & Yang, J. S. (2014). Bribery solicitations and firm performance in the Latin America and Caribbean region. Journal of Comparative Economics, 42(1), 246–264. https://doi.org/10.1016/j.jce.2013.05.004
Sequeira, S., & Djankov, S. (2014). Corruption and firm behavior: Evidence from African ports. Journal of International Economics, 94(2), 277–294. https://doi.org/10.1016/j.jinteco.2014.08.010
UNIDO (2012). Corruption prevention to foster small and medium–sized enterprise development.
Wang, Y., & You, J. (2012). Corruption and firm growth: Evidence from China. China Economic Review, 23(2), 415–433. https://doi.org/10.1016/j.chieco.2012.03.003
Author information
Authors and Affiliations
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Van Khanh, P., Minh, N.K. & Thu, N.T.X. An optimization approach to the link between productivity, relocation cost and corruption. Ann Oper Res 312, 427–439 (2022). https://doi.org/10.1007/s10479-021-04360-1
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10479-021-04360-1