Corruption And Disposable Risk

Corrupt bureaucrats manipulate rules and regulations to coerce the private agents to pay bribes. In such an environment the cost of dealing with the public sector is uncertain as the regulations are not observed as they are originally defined. Combined with weak enforcement and compliance, predation of corrupt bureaucrats makes private disposable income volatile. The authors study this uncertainty within a stochastic dynamic growth model framework, where they generalize the corruption caused uncertainty as a shock to disposable income of agents.