Essays on the Political Economy of Corruption and Rent-Seeking

Abstract

The dissertation is made up of three papers on the political economy of corruption and rent-seeking. Two of the papers make use of the historical experience of Britain to illustrate the theoretical points being made. The first paper shows that eighteenth-century Britain displayed patterns of corruption similar to those of developing countries today. To explain anti-corruption reforms, the paper develops a model in which the political elite is split between government officials and asset-owners. Government officials can act in one of two regimes: a corrupt one in which they are free to maximize their income from the provision of government goods, and one in which a regulated system leaves no room for individual profit maximization. Faced with a change in the level of demand for government goods, officials become able to extract rents at a level that leads to other members of the elite voting to enact reforms. The logic of the model is tested using a new dataset of members of the House of Commons and its main implications are validated. The second paper develops a model of how the British political class came to give up its power to extract rents from the economy between the 1810s and the 1850s. The key of the explanation lies in understanding the bargaining process between economic agents who seek permission to engage in economic activity and a legislature that can grant such permissions. The third paper analyzes the distributive effects of corrupt interactions between government officials and citizens. Corruption is modeled as a solution to an allocation problem for a generic government good G. Beyond a transfer from citizens to the government, corruption redistributes welfare towards "insiders" who share some natural connection to the government and to other insiders. Corruption also redistributes welfare towards those who are skilled in imposing negative externalities, and encourages the imposition of such negative externalities.