10.4225/03/59377ac2b2d26
Li, Ke
Ke
Li
Smyth, Russell
Russell
Smyth
Shuntian, Yao
Yao
Shuntian
Institutionalized Corruption and Privilege in China's Socialist Market Economy: A General Equilibrium Analysis
Monash University
2017
monash:2215
1959.1/2215
Privileged Groups
Specialization
Exogenous Corruption
Division of Labor
2002
Endogenous Corruption
2017-06-07 04:02:09
Journal contribution
https://bridges.monash.edu/articles/journal_contribution/Institutionalized_Corruption_and_Privilege_in_China_s_Socialist_Market_Economy_A_General_Equilibrium_Analysis/5084971
This paper develops a general equilibrium model to consider the effects of corruption on economic welfare, the network size of division of labor and productivity. A Walrasian equilibrium in a market economy is firstly computed in which each person can choose his/her occupation freely. We then consider the effects on welfare when a privileged group is chosen to work as high-level administrators. Finally, we allow for explicit collusion between administrators through introducing an administrator's agent who acts in the interests of all the administrators by introducing an entrance fee, amounting to a bribe; while the price of the administrators' services is still determined by the supply and demand of a Walrasian market. The model shows that corruption increases the economic welfare of a privileged group in China consisting of high ranking officials and those closely connected to them at the expense of the general populace. While the model is developed in order to explain corruption in China, it is also potentially relevant to other countries with entrenched privileged groups.