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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Daniel Kaufmann

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Working Papers

April 1999Does "Grease Money" Speed Up the Wheels of Commerce?
with Shang-Jin Wei: w7093
In an environment in which bureaucratic burden and delay are exogenous, an individual firm may find bribes helpful to reduce the effective red tape it faces. The efficient grease' hypothesis asserts therefore that corruption can improve economic efficiency and that fighting bribery would be counter-productive. This need not be the case. In a general equilibrium in which regulatory burden and delay can be endogenously chosen by rent-seeking bureaucrats, the effective (not just nominal) red tape and bribery may be positively correlated across firms. Using data from three worldwide firm-level surveys, we examine the relationship between bribe payment, management time wasted with bureaucrats, and cost of capital. Contrary to the efficient grease' theory, we find that firms that pay more br...

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers onlyInformation about this author at RePEc

 
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