A theory of misgovernance

78 Pages·1997·1.6 MB·English

by  Banerjee, Abhijit V

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working paper
department
economics
of
A THEORYOFMISGOVERNANCE
AbhijitV. Banerjee
No. 97-4 February, 1997
massachusetts
institute of
technology
50 memorial drive
Cambridge, mass. 02139

WORKING PAPER
DEPARTMENT
OF ECONOMICS
A THEORYOFMISGOVERNANCE
AbhijitV.Banerjee
No. 97-4 February, 1997
MASSACHUSEHS
OF
INSTITUTE
TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE. MASS. 021329
MASSACHUSETTSINSTITUTE
PCTF.r.MNni.oGY
11987
'aUL-
A THEORY OF MISGOVERNANCE
ABHIJIT V. BANERJEE
28th February 1997
*This paper was inspired by many conversations with Andrei Shleifer. Two
anonymous referees made extremely helpful comments I have also profited from
.
comments by Daron Acemoglu, Andres Almazan, Tuli Banerjee, Gary Becker,
Douglas Bernheim, ,,Christopher Clague, Peter Diamond, Avinash Dixit, Drew
Fudenberg, Oliver Hart, Patrick Legros Eric Maskin, Andrew Newman, Thomas
,
Piketty, Rohini Somanathan, Jean Tirole, Jorgen Weibull and seminar
participants at Princeton University, the University of British Columbia, the
Kennedy School of Government at Harvard University, the University of Chicago
and Harvard University. Some of these arguments were in the notes that were
circulated some time ago as "The Costs and Benefits of Corruption.". This
work was carried out when the author was an IPR junior fellow. It was
supported by financial assistance from IRIS. However, the views expressed
here are strictly the authors own. The author also acknowledges the
hospitality of DELTA in Paris where this work was started.
Abstract.
This paper tries to explain why government bureaucracies are often
associated with red tape, corruption and lack of incentives. The paper
identifies two specific ingredients which together can provide an explantion -
the fact that governments often act precisely in situations where markets fail
and the presence of agency problems within the government. We show that these
problems are exacerbated at low levels of development and in bureaucracies
dealing with poor people. We also argue that we need to posit the existence of
a welfare-oriented constituency within the government in order to explain red
tape and corruption.
JEL Classification D23, H40