Underdevelopment and the Economics of Corruption: A Game Theory Approach

1. Underdevelopment and the Economics of Corruption: A Game Theory Approach John MacRae World Development 10,8 (1982): 677-687.

2. Introducción • “For developing countries…corruption is of growing rather than declining importance.” 677 • “We argue that game theory can enable progress to be made where utility maximization falters and that useful conclusions can be derived from a minimum of assumptions.” 677

3. definition • “arrangement”: “private exchange between two parties which: (1) has an influence on the allocation of resources either immediately or in the future, and (2) involves the use or abuse of public or collective responsibility for private ends.” 678

4. definition • 3 factors that differentiate this market • Secrecy • Rival behavior • Risk and uncertainty • 4 factors that influence arrangement prices • Level of hierarchy • Risk • Price rivals offer • “official settlement costs, i.e., the level of fines etc.”

5. Review of methodologies • Utility maximization (Rose-Ackerman, Beenstock) • “The utility maximizing approach would appear more suited to answering the question ‘what level of unit arrangement price is likely to be offered?’ rather than ‘why does a decision to be corrupt occur in the first place?’” 679

6. Game Theory Approach B’s Strategies A’s Strategies

7. Conclusions